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    Health & Welfare Blog

    Form 5500: Are You Sure You Are Filing All That Are Required?

    [fa icon="calendar"] Jun 26, 2015 9:00:00 AM / by Ken Ruthenberg

    Ken Ruthenberg

    Advice on how and when to file Form 5500…

    How can filing an annual return/report on a Form 5500, a relatively simple information return that does not require the payment of any taxes, become so complicated and result in such huge penalties for noncompliance? The answer lies in the complex filing requirements that mandate employee benefit plan filings by employers with the IRS, the DOL, or both.

    Do you know if you are filing all of the Forms 5500 that you should be filing? Do you have a plan that may have been exempt from the filing requirements, but is no longer exempt? In this article, we will examine who needs to know about filing annual returns/reports (which may surprise some employers), which plans are subject to the filing requirements (more surprises), how to comply with the filing requirements, and what happens if you don’t.

    Who Needs to Know About Filing a Form 5500?

    Every employer that sponsors any sort of employee benefit plan must be familiar with the annual return/report (Form 5500) filing requirements. Why? Because the law requires that:

    • Every administrator/employer of a pension or welfare benefit plan must file a Form 5500 unless the plan is exempt from the DOL filing requirements.
    • Every employer who sponsors a pension plan or other funded plan of deferred compensation must file a Form 5500 unless the plan is exempt from the IRS filing requirements.

    And the consequences of not complying with these requirements? The failure to file a properly completed return, on time, carries stiff penalties for the employer or the administrator.

    Could I Be Sponsoring a “Plan” and Not Even Know It?

    Yes. Although the complexity of the rules that determine what constitutes a “plan” prevent a full discussion here, suffice it to say that you may be surprised to learn that an arrangement that you have made with an employee is a “plan” for filing purposes. For example, have you and just one employee agreed that compensation will be paid after the employee retires? You may have a pension plan for which no filings are being made.

    Are All Employee Benefit Plans Subject to These Filing Requirements?

    No. Whether a plan is subject to the filing requirements depends upon the type of plan, the size of the plan, how the plan is operated, and the identity of the sponsoring employer. Here are some examples of employee benefit plans that are exempt from these filing requirements (and some surprises for plans that you might have thought were exempt):

    • “Top hat” plans.
      Unfunded pension benefit plans for the exclusive benefit of a select group of management or highly compensated employees are exempt from the DOL filing requirement if a notice has been filed with the DOL within 120 days after the plan became subject to ERISA. If no notice has been filed, however, the plan is not exempt. For example, tax-exempt employers that sponsor deferred compensation plans under Code section 457 often overlook this requirement. Similarly, if an employee who is not in the “top hat” group is allowed to participate in the plan, the plan loses this exemption. As a result, a tax-exempt employer’s Code section 457 plan can become subject to the DOL filing requirement and the plan must be “funded” — which violates section 457’s requirements.
    • Section 403(b) tax-sheltered annuities.
      Annuity arrangements under tax-sheltered annuity plans are exempt from the filing requirements if they are exempt from ERISA (i.e., limited employer involvement). Such a plan becomes subject to the filing requirements, however, if the ERISA exemption is lost (e.g., the employer makes contributions to the plan other than salary reduction contributions).
    • Small welfare benefit plans.
      Welfare benefit plans which cover fewer than 100 participants at the beginning of the plan year and which are either unfunded, fully insured, or a combination of insured and unfunded, are exempt from the DOL filing requirements. The issue of whether a welfare benefit plan is funded or unfunded is a complicated one, and one which can have dire consequences. Furthermore, if such a plan grows to at least 100 participants as of the beginning of the plan year, it is no longer exempt.

    Generally, if the benefits are paid from the employer’s general assets, the plan is unfunded. The DOL’s regulations dictate, however, that participant contributions paid to an employer, or withheld from wages by the employer (e.g., under a cafeteria plan) for contribution to an employee welfare benefit plan constitute plan assets. Even if no trust is established to hold these plan assets, the employer loses the exemption from the reporting requirements for small plans and the exemption from the independent qualified public accountant audit requirement for large plans (at least 100 participants), according to the DOL enforcement policy regarding participant contributions:

    ERISA Requirement

    Cafeteria Plans

    After-Tax Fully Insured Plans


    Self-Insured Plans

    Assets must be held in trust

    Not enforced

    Not enforced


    Annual return/reports for small plans

    Not enforced if no trust and all premiums are paid within three months

    Not enforced if no trust and all premiums are paid within three months


    Accountant audit for large plans

    Not enforced if no trust and all premiums are paid within three months

    Not enforced if no trust and all premiums are paid within three months


    As if the waters could not be muddied any further, the DOL did so by issuing an opinion letter indicating that a welfare plan may be considered “funded” when its third party administrator (TPA) makes payments out of an account used to pay its clients’ claims. Thus, such arrangements can be viewed as subject to the Form 5500 filing requirements (even though fewer than 100 participants are covered by the plan). The best way to avoid this problem is to make sure that the plan documents and the summary plan descriptions are written, and the TPA’s account is established, in such a way as to preclude the plan and the participants from obtaining a beneficial interest in the account.

    • Small “one-participant” pension plans. Pension plans covering only (i) a sole, self-employed individual (and spouse), (ii) the sole owner of a corporation (and spouse), or (iii) the partners (and spouses) are exempt from the IRS and DOL filing requirements under certain circumstances. However, such a plan can move in and out of the filing requirements (e.g., where the assets of all of the employer’s one-participant plans go above or drop below $250,000 from one year to the next, where the plan covers employees other than the owner, or if the plan is terminated).

    What Should I File?

    The form and schedule that must be filed are determined by the instructions to the Form 5500. Plans other than certain one-participant pension plans file Form 5500 with different schedules, depending on the type of plan, the size of the plan, and plan attributes. How many forms are filed depends upon the number of plans and the sponsoring employer(s).

    The Form 5500 serves triple duty as it is used for filing with the IRS for pension plans, the DOL for pension and welfare benefit plans that are subject to ERISA, and the Pension Benefit Guaranty Corporation for certain defined benefit pension plans. One filing with the DOL satisfies the requirements of each of these agencies. A plan may be subject to one, two, or all three of the filing requirements.

    An employer that provides welfare benefits to its employees may be confused by the filing requirements. How many Forms 5500 does this employer file? It depends on how many plans there are. This is not as simple as it sounds. It depends on how the plan documents are written. For example, an employer that provides medical, dental, and vision benefits to its employees may have one, two, or three plans.

    Multiple Employer Plan Confusion

    If an employee benefit plan is sponsored by more than one employer, more than one Form 5500 may have to be filed. This depends on how the plan operates and the relationship among the employers.

    First, you must determine how many plans exist by examining how benefits are paid. If benefits are payable to participants from the plan’s total assets, without regard to contributions by each participant’s employer, there may be only one plan. Otherwise, there are multiple plans (one sponsored by each separate employer) and each employer must file a Form 5500 for its plan (unless it is otherwise exempt).

    If you determine that there is one plan in which multiple employers participate, you must determine whether all of the participating employers are members of the same controlled group or affiliated service group. This determination governs how you complete the Form 5500.

    An additional problem exists for welfare benefit plans that are established through a multiple employer trust (MET) or a voluntary employees’ beneficiary association (VEBA). At what level does the plan exist? There may be one plan at the MET/VEBA level or multiple plans, depending upon the number of employers or groups of employers. All of this depends on the DOL’s interpretation of who participates in the MET/VEBA and the common bond among the participating employees and employers. For example, a MET/VEBA for a region’s plumbing companies may be one welfare benefit plan. It would probably be viewed as multiple plans, however, if participation was expanded to any employer who had anything to do with the plumbing (e.g., you have plumbing in your office building so you can join the plan). Such an arrangement may also create State insurance law problems because of the special ERISA preemption rules applicable to multiple employer welfare arrangements (MEWAs).

    When Is the Filing Due?

    Unless the plan is exempt from the filing requirements, a Form 5500 must be filed for every plan year from the plan’s inception until the plan is terminated and a final Form 5500 is filed. The filing is due by the last day of the seventh month following the end of the plan year. For example, if the plan year ends on December 31, the filing is due July 31.

    It is possible to obtain an extension by filing a Form 5558 before the seven month due date. If the extension is granted, you will be given 2-1/2 additional months (e.g., until October 15 for a December 31 plan year end). Even if a Form 5558 is not filed, an automatic extension may be granted until the extended due date of the employer’s federal income tax return under certain specific circumstances.

    If I Don’t Play, What Do I Pay?

    The failure to comply with the applicable filing requirements can hurt. ERISA will hurt you in the following ways if you don’t comply with the DOL filing requirements:

    • Willful violations can result in a fine of up to $5,000, imprisonment for up to one year, or both if the person convicted is an individual. If the person convicted is not an individual (e.g., a corporation), the fine can be as high as $100,000.
    • Mere failures to file on time can result in a penalty of up to $1,100 per day with no maximum. Currently, the DOL seeks a penalty from late filers of $50 per day, per plan, with no maximum. Non-filers who are caught by the DOL face a penalty of $300 per day, per plan, up to $30,000 per year, per plan.

    Similarly, the Internal Revenue Code imposes a separate penalty for noncompliance with the IRS filing requirements of $25 per day, with a maximum of $15,000 per Form 5500. If a plan is subject to the filing requirements of both the DOL and the IRS (e.g., a pension plan that is not exempt from ERISA), both penalties can be imposed.

    These penalties apply to situations where the Form 5500 is not filed or is filed late. They can also apply if a Form 5500 is rejected by the government. How can this happen? Suppose the employer sponsors a pension plan with at least 100 participants. A Form 5500 is filed accompanied by an audit report by an independent qualified public accountant. If that audit report is deficient under the DOL’s standards, the DOL may reject the report and take the position that no filing has been made unless the deficiency is corrected within 45 days.

    Both the DOL and the IRS filing penalties are excusable where “reasonable cause” can be demonstrated. Generally, reasonable cause exists where the person detrimentally relied on the advice of an “expert” regarding the filing requirements as opposed to situations where the person was simply too busy. Each case must be carefully examined and researched in order to determine if reasonable cause can be established. Alternatively, late filers can avoid significant penalties by making a voluntary filing under the DOL’s Delinquent Filer Voluntary Compliance Program.

    Filers should also be aware of the other criminal sanctions that apply to the Form 5500. Any person who knowingly makes any false statement or representation of fact, or knowingly conceals any fact required by ERISA, is subject to a penalty of up to $10,000, imprisonment for up to five years, or both.

    Are There Any Benefits from Compliance?

    Yes, aside from not facing the severe penalties for noncompliance, the primary benefit is that the filing of the Form 5500 starts the clock running on the government’s ability to take adverse action against the plan. For example, when the Form 5500 is filed, the clock begins to run with respect to the excise taxes on any prohibited transaction that occurred during that year. If the item is sufficiently disclosed, three years is the time limit; otherwise, it is six years (unless there was fraud, in which case there is no time limit). Not exactly like winning the lottery, but it sure beats prison and penalties.

    What to Do?

    Every employer should review all of its employee benefit programs to identify each plan and to make sure that each plan that must file a Form 5500 is filing the proper form. The employer should also review these forms to insure that they are accurate, complete and filed on time each year. If you discover that some filings have been missed or you are faced with late filing penalties, you should seek advice concerning your obligations and the possibility of avoiding the penalties.

    Ken Ruthenberg

    Written by Ken Ruthenberg

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