Employers offering a workplace qualified retirement plan have to comply with certain government rules, such as filing annual returns/reports with the Internal Revenue Service (IRS). Here we’ll discuss Form 5500 requirements, including due dates, applicable late filing penalties, avoiding common errors and more. Let’s dive right in.

Purpose of Form 5500

It is an annual report, filed with the U.S. Department of Labor (DOL), that contains information about a 401(k) or 403(b) plan’s financial conditions, investments, and operations. The purpose of the Form 5500 is to provide the IRS and DOL with information about the plan’s operation and compliance with government regulations.

Due Date and Extension Options

The IRS mandates that businesses and organizations that sponsor a retirement plan file a Form 5500 by the seventh month following the close of the prior plan year. So for those calendar year plans, the original filing deadline would be July 31.

However, plan sponsors can extend the deadline an additional 2-1/2 months to October 15. And most “large filers” (generally plans with more than 100 participants) that require annual CPA audit do usually take advantage of the additional time. So how does one go about extending the deadline? By filing IRS Form 5558.

Normally “small filers” (generally, plans with less than 100 participants) file their plan’s Form 5500 without extending the deadline. There’s a reason for that: Small filers can file easier, shorter version of Form 5500 and they do not require CPA audit which can take time.

Late Filing Penalties

Try to file your forms timely. Beginning 2020 plan sponsors face much stiffer IRS penalties for not complying with plan reporting requirements. The penalty for non-filing has increased ten-fold by the SECURE Act to $250 per day up to $150,000 per plan year. Missed the filing deadline? Don’t fret as IRS does provide some relief. More information.

Form 5500 Filing Process

Most providers will prepare the form and leave the filing to you. They will ask you to obtain DOL signing credentials so that you can file/submit the form. However, many other service providers will do the heavy lifting and file the form on your behalf. After the successful filing, they will provide you with a confirmation to keep with your files.

Avoiding Common Errors

Per IRS, providing incorrect information or unintentionally leaving a field blank when completing the Form 5500 may lead to an employee plan compliance check by the DOL.

Avoid these common errors we see on Form 5500 filings:

1. ERISA Fidelity Bond: Not indicating on the form that the plan has fidelity bond coverage. As a general rule, plans must carry fidelity bond coverage at all times of 10% of plan assets up to maximum of $500,000.

2. Late Deferrals: Not reporting delinquent employee contributions. Accidents happen and many businesses or organizations are unable to deposit contributions timely. These late contributions should be reported on Form 5500.

3. Plan Characteristics: You must indicate the type of plan you have on the Form 5500 by filling in certain codes. For example, code “2G” tells that IRS that you have a 401(k). And code “2L” indicates that you have a 403(b) plan. The IRS identifies the type plan you have by these codes so it’s important to indicate them properly.

Summary Annual Report (SAR)

It’s almost a sin to not talk about the SAR when we are discussing Form 5500. Every year, plan sponsors are required to provide a Summary Annual Report (SAR) to their plan participants. The SAR is an IRS mandated document that summarizes the information reported on the Form 5500 and schedules. The SAR must be distributed to each participant and their beneficiaries receiving benefits under the plan no later than two months following the Form 5500 filing deadline, unless the plan filed for an extension, in which case they have until December 15 (for calendar year end plans).

Final Words

Using an experienced retirement plan expert firm can help you avoid mistakes, ensure government forms are clear of all errors and minimize your plan-related workload and risk. Here at NESA we are on a mission to help small businesses and not-for-profits help their employees prepare for a brighter financial future. In the process, we manage all the retirement plan complexities so that our clients can focus on what matters most. You knew there was going to be a marketing pitch somewhere?