Plan Administrators Beware
Not filing a 5500 or the late filing of a 5500 can lead to severe penalties.
Late filed returns are subject to penalties from both the Internal Revenue Service (“IRS”) and Department of Labor (“DOL”), so it is very important to identify this mistake before they do! The IRS penalty for late filing of a 5500 series return is $25 per day, up to a maximum of $15,000. The DOL penalty for late filing can run up to $1,100 per day, with no maximum.
What you should know? The Basics.
Most plan administrators are required to file annual Form 5500, Annual Return/Report of Employee Benefit Plan which are required to be filed electronically with the DOL through the DOL EFAST website. What can plan administrators do if they fail to file Form 5500? In many cases, when a plan has made an error and wishes to correct it, plan administrators can use the Employee Plans Compliance Resolution System (“EPCRS”). However, correction of a late filed Form 5500 is not possible under EPCRS. To correct the missed Form 5500 filing, plan administrators must file the delinquent return as soon as possible using the DOL Delinquent Filer Voluntary Correction Program (“DFVCP”). Using the DFVCP before the DOL notifies plan administrators of the missing Form 5500 filing, only the fees under the DFVCP program will apply. The fee under the DFVCP is $10 per day late, with a cap ranging from $750 to $2,000 per late filing. This is much less expensive than the penalties that could be imposed if the DOL notifies plan administrators of a late Form 5500 before one corrects it under DFVCP. If one uses this DOL program, the IRS has stated that it will not pursue any late filing penalties, provided that certain conditions are met, including a separate filing with the IRS on Form 8955-SSA to report any participants who terminated employment during the plan year with vested benefits that had not been distributed before the end of the plan year.
If one is notified in writing by the DOL of a failure to file a timely Form 5500 before the failure is corrected under the DFVCP, the DOL penalty for late filing can run up to $1,100 per day with no maximum and one cannot use the DFVCP to reduce the fees.
So how can plan administrators avoid this mistake?
- Understand that the plan administrator has the responsibility for ensuring that the return is filed timely.
- Identify a person or outside service provider that can file Form 5500 timely.
- Use a calendar that notes the deadline for filing the Form 5500 return and implement a communication mechanism to alert the plan administrator and any outside service provider of the upcoming deadline to file.
If you would like more information or have additional questions, please fill in the form below and one of our Employee Benefits Services team members will get in touch.
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