July 31 is approaching – and for most calendar year plans, that is the un-extended deadline to file IRS Form 5500. Now is the time for plan sponsors to be actively reviewing draft filings with their professional advisors.
The Form 5500 is an annual filing made with both the U.S. Department of Labor (DOL) and Internal Revenue Service (IRS). Form 5500 must be filed by most retirement plans (such as 401(k) plans) and many health and welfare plans. The stakes are real.. Both the DOL and IRS have the ability to impose significant penalties for incorrect, incomplete, or delinquent filings (roughly, $2,500+ per day). Additionally, DOL and IRS utilize these filings, in part, to determine which plans to further investigate based on the entries. For example, entries that are not in accordance with the detailed instructions or that perhaps just do not make sense and unnecessarily raise red flags. This problem and burden can be easily avoided by carefully completing the form accurately and timely.
Some reminders and considerations to assist in decreasing your chances of winning the DOL or IRS “audit lottery” relative to the Form 5500 include:
- The plan sponsor employer signs Form 5500 under penalty of perjury swearing as to its accuracy and completeness. It is not a formality. As such, it is advised to have confidence in its accuracy and completeness as the result of genuine engagement. The involvement and review with your professional advisors should increase this confidence. That is, it is not something to be signed without a thorough understanding of the assertions being made.
- For preapproved 401(k) plans, ensure the correct opinion letter serial number is entered on Schedule R. This is a relatively new requirement; one where missteps can occur as the result of recordkeeper and administrator efforts to increase their efficiencies, which then result in error.
- Late deposits – make sure they’re late before you report them as such. Sometimes they are not late, or sometimes the issue is confused with a different problem such as the qualification failure referred to as “missed deferrals.” If there is a late deposit issue, the better course would be to correct the issue before filing the Form 5500 so that you may report on the required separate attachment that correction was accomplished. Plans that report having not corrected are more likely to garner attention from DOL than those who report that the matter has been resolved.
- There are a few versions of the Form 5500. Be sure to use the right version. In doing so, participant count is key.
- Don’t miss the filing due date, as penalties could be significant. This involves lining up the form’s preparer and the independent auditor (if an audit report is required) and ensuring all are focused on the due date. If the filing is going to be late, consider participation in the DOL’s Delinquent Filer Voluntary Compliance program (which has certain eligibility conditions including, in general, that participation in the program must be accomplished before the DOL notices the deficiency or non-filing and imposes a more significant penalty in the normal course). Recent situations have revealed auditors not being able to complete the audit report on time and suggesting to file the Form 5500 without it. This approach seems very risky.
- Some of the options for entries on the form include a description that says “other.” Before using that option, best to ensure that there is not a better choice among the options that are more descriptive. For example, under the Schedule C service codes, there are approximately 50 descriptors/codes to choose from before the need to resort to using the “other” code to describe the services and fees vendors are providing and receiving.
- Report plan name or plan sponsor name changes. Similarly, use current addresses. It seems there is little tolerance for mix ups where DOL sends a letter to an old address and the DOL imposed response time is missed by the responding employer plan sponsor.
- Double check participant counts, and look for anomalies. For example, was there a large increase or decrease reported over a period of one day? If so, did it really happen, and if so why?
- Confirm your plan year end dates relative to plan mergers and terminations. This is the date that drives “final” filing due dates. The legal date of the plan merger is the trigger relative to a plan merger; not the date assets moved (which is typically later). In contrast, the date that plan assets were fully distributed is the trigger relative to a plan termination; not the declared termination date (which is typically earlier). Also, sometimes the final 5500 (and/or those required before a final 5500 may be filed) gets lost in the shuffle as personal and provider changes are made in connection with an acquisition.
- Maintain proof of having filed for an extension. This should quickly extinguish any discussion with the IRS or DOL if the government’s systems somehow do not reflect the extension as having been filed.
In summary, the status of Form 5500s should be ascertained, and drafts carefully reviewed and considered prior to signing and filing.
As a corollary to this alert, a complex and lengthy plan amendment will be required by the end of 2026 for most retirement plans in response to SECURE 2.0 and other law changes. Please be in contact with your document provider and have the amendment reviewed by ERISA counsel sooner than later.
Whether you need assistance reviewing a filing, correcting compliance issues, or navigating ongoing employee benefits requirements, the Miller Nash employee benefits team is ready to provide practical guidance and support.
The legal issues impacting this topic are and will continue to be ever-changing (Employment Law in Motion!), and since publication of this blog post, new or additional information not referenced in this blog post may be available.
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.
