The Welfare Plan Form 5500 is a compliance and disclosure document that employers must file with the Department of Labor (DOL) and the Internal Revenue Service (IRS) for pension or welfare benefit plans covered by the Employee Retirement Income Security Act.
The purpose of Form 5500 is to provide the IRS and DOL with information about the plan's operation and compliance with government regulations.
It is important for you to understand what Welfare Plan Form 5500 Compliance all is about.
We spoke with Ann Myers (partner) and Alan Perka (Sr. Manager) from the 5500 Tax Group to help better understand what the document is for and how to help businesses better understand it and how and when to file it.
An Overview of Form 5500
Ann, would you give us an overview of what Form 5500 is about.
“The Department of Labor, the Internal Revenue Service, and the Pension Benefit Guarantee Corporation jointly developed the Form 5,500 series so employee benefit plans could utilize the Form 5,500 to satisfy annual reporting requirements under Title I and Title 4 of ERISA and under the Internal Revenue Code.
The Form 5,500 series is an important compliance, research, and disclosure tool for the Department of Labor, a disclosure document for planned participants and beneficiaries, and a source of information and data for use by other federal agencies, Congress and the private sector, and assessing employee benefit, tax, and economic trends and policies.
The Form 5,500 is part of ERISA's overall reporting and disclosure framework, which is intended to assure that employee benefit plans are operated and managed in accordance with the certain prescribed standards, and that participants and beneficiaries, as well as the regulators, are provided or have access to sufficient information to protect the rights and benefits of participants and beneficiaries under employee benefit plans.
When is Form 5500 required for welfare plans?
Well, for welfare plans, there are two classifications there are funded and unfunded. Funded meaning that it's run through a trust. The majority of them are unfunded. In fact, all of the clients that I manage have unfunded plans and the threshold for filing for an unfunded plan is if there are 100 or more employee participants on the first day of the plan year. And so, you're looking at active employee participants and any employee cobras that might be on the plan, but we're not looking at dependents at all and so that's the threshold that we're looking for an unfunded plan.
When are Forms 5500 due?
The 5,500 is due on the last day of the seventh month following the end of the plan year.
So, for a calendar year plan, December 31st plan year-end, the due date would be July 31st.
You can file an extension that gives you an additional two and a half months, but that extension needs to be filed before the original due date. So for a calendar year plan, July 31st,can extend it out to October 15th.
Are there penalties for not filing a Form 5500?
Yes, there are. What are classified as late filers and non-filers. For a late filer, the penalty can be $50 a day with no limit from the original due date. And a non-filer, which is, I guess, someone who actually would be found to have not filed at all that needed to, that can be up to $300 a day, up to $30,000 per year. But the DOL has come up with a program that’s called the Delinquent Filer Voluntary Compliance program. We call it DFVC and they're trying to get people just to comply.
They're not looking to penalize people so much so, if you voluntarily submit late filings, the penalty is only $10 a day from the original due date, up to $2,000 per filing. So that would be for a year would max out at $2,000, and then $4,000 for a plan.
So, no matter how many years past the second year, the penalty is maxed out at $4,000, which is a much more reasonable approach than the other ones are could potentially really financially impact the company.
Those penalties are large, but when you take any type of a government filing that doesn't have a balanced due, which there is none with the 5,500, the penalties have to be high so that it encourages people to comply because otherwise they wouldn't so that's why the penalties are so large.
Are certain plan
sponsors exempt from having to file Form 5500?
Actually, there are several that are exempt. Government plans, interestingly enough, the government has exempted themselves from having to file 5,500. Certain church plans under ERISA Section 333. Group insurance arrangements where there is an insurance plan that covers multiple companies, then whoever offers that insurance plan files the 5,500 for all of those participating companies.
So, you as a company that participates in one of those is not required to file your own 5,500. And then welfare plans that are maintainedoutside of the United States. If you've got a US company that has a plan just for their office, say in England, for instance, that particular plan would not have to file a 55. And of course, just to reiterate, in any other welfare plan unfunded that's under 100, it's also exempt from having to file.
Can a plan sponsor file more than one welfare Form 5500?
Yes, if there's not a wrap document, there can be multiple plans that would all have to be filed individually. And the number of plans without a wrap document, you would take a look at the benefits that are offered, and then carriers You can group those benefits together under one 5,500.
But say if your medical is with one company, your dental is with another, your vision is with another, then you could potentially have three 5,500 that need to be filed So you have to look at it on a case-by-case basis.
Essentially, each individual insurancecontract becomes a planned document if You don't have an overall plan documentthat wraps it all together and of course, a self-funded benefitwould not have an insurance contract, but it would still be a separate plan.
What are Wrap Plan Documents?
ERISA requires every plan sponsor to have a written plan document and if you don't have an overall document that wraps all of your benefits together, employers typically rely upon the carrier booklets that are provided to them.
So, like we talked about, you need to file separate 5,500s. It's a bigger administrative task.
If you put together a wrap plan document, it takes all of the benefits that you offer, wraps them all into one plan. You have one document that has all of the language required for ERISA, and then that allows you to file one 5,500 foryour company instead of multiple 5,500.
So, it really reduces the administrative burden while also satisfying the document requirements of ERISA.
The interview is available in its entirety at Podbean and you can read more about Form 5500 Preparation on their website.
Many Thanks to Ann Myers and Alan Perka of the 5500 Tax Group.
Ann Myers is a partner of the 5500 tax group and has been practicing public accounting since 1989 and has specialized in employee benefits since 1993. Ann has extensive experience assisting non-filers and plans with other failures by utilizing the various correction programs offered by the Department of Labor and the Internal Revenue Service. Ann is located in Pittsburgh, PA.