What is a 5500 Form?
Form 5500, is the most important form in your retirement plan package. Form 5500 is additional reporting that many employers or plan sponsors don’t realize they’re required to file with the government. It sheds light on the operations of a retirement plan, so it’s critical for sponsors to prepare everything in a timely and thorough manner. It is the responsibility of the employer to ensure that their plans are operated and managed in accordance with certain prescribed standards. These standards include fiduciary responsibility, which means they have to act in the best interest of the participants. They also have to provide adequate funding to cover all benefits earned by plan participants and make sure there is no discrimination against any participant on the basis of race, color, religion or sex.
Who is Required to File a 5500 Form?
Businesses are required to file Form 5500 with the United States Department of Labor (DOL) when they sponsor a pension or retirement fund. The form reports on the financial health of various employers that offer pension plans to their employees. ERISA requires employers with 100 or more participants to report certain information to the DOL annually on 5500.
ERISA 5500 Forms
The 5500 Series 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 certain prescribed standards and that participants and beneficiaries, as well as regulators, are provided or have access to sufficient information to protect the rights and benefits of participants and beneficiaries under employee benefit plans.
Form 5500 – is part of ERISA’s overall reporting and disclosure framework, which is intended to assure that employee retirement plans are operated in the interests of participants and beneficiaries, in accordance with the law, and with appropriate regard for the impact on federal income tax receipts.
5500SF – Short Form Annual Return/Report of Small Employee Benefit Plan, is a simplified annual reporting form for small retirement plans that have fewer than 100 participants and less than 100 account balances at the end of the plan year.
Form 5500EZ – is a simplified version. If you have less than 100 participants who are covered by an automatic enrollment retirement plan or an automatic contribution arrangement established under Internal Revenue Code section 401(k), then you may file Form 5500EZ.
What is ERISA?
The Employee Retirement Income Security Act of 1974, or ERISA, is a federal law governing employee benefit plans. ERISA is concerned with the security of the funds that are contributed to these plans and how they are invested. It also prescribes standards for plan administration and prohibits certain transactions between the employer and plan participants. ERISA provides two sets of rules to regulate retirement plans: one set that applies to pension plans, and another set that applies to welfare benefit plans (e.g., health insurance). The rules governing pension plans are found in Title I of ERISA; those governing welfare benefit plans are found in Titles II-IV.
5500 Form Late Filing Penalty
Late filers of Form 5500 can be penalized twice — both by the IRS and the DOL.
The IRS penalties for a late filing without notice or a qualified extension are $250 per day, up to a maximum of $150,000.
- DOL Late Filings Without Extension – $50.00/day for each plan/ per year with no cap.
- Failure to File – $300/day up to 30,000/year and the DOL has the ability to impose a $2,400/day penalty with no maximum.
ERISA, DOL, and IRS regulations make compliance complicated for any business. We ensure you meet all requirements and deadlines while saving you stress, time, and money.
Summary Annual Report (SAR)
Due September 30, 2022 (for calendar year plans)
Employers who are required to file a Form 5500 for their sponsored health plan must distribute a Summary Annual Report (“SAR”) to plan participants within the later of nine months after the end of the plan year or two months after filing of Form 5500 if a filing extension was granted. A SAR stands for Summary of Annual Report. It must be provided to each plan participant including COBRA participants and terminated employees who were covered under the plan, during the applicable plan year.
The SAR can be distributed by hand delivery, U.S. mail, or electronic delivery.
Electronic delivery must meet the following Department of Labor rules:
- Employers can electronically deliver the SAR to employees with “regular access” to electronic media at work if they accompany the SAR with a notice that briefly describes the document, how it can be accessed and a statement that employees have the right to request a paper copy and an explanation of the procedure for updating the employee’s email address.
- Employers cannot electronically deliver the SAR to individuals without regular access to electronic media at work unless the individual affirmatively consents to electronic distribution beforehand. Before obtaining consent, the employer must provide a statement of the types of documents that will be sent electronically, the individual’s right to withdraw consent and the procedure for doing so, the procedure for updating the individual’s email address, the individual’s right to obtain a paper copy, and a description of the necessary hardware and software requirements to access the SAR. Some employers include this consent in their off-boarding paperwork so that they can send terminated employees certain documents, including the SAR, electronically.
Employers who sponsor a group welfare plan generally must file Form 5500 and corresponding SAR if:
- The plan is fully insured and had 100 or more participants on the first day of the plan year. (Dependents are not considered “participants” for this purpose unless they are covered because of a qualified medical child support order.)
- The plan is self-funded and uses a trust regardless of how many participants there are.
- The plan is self-funded and relies on the Section 125 plan exemption if it had 100 or more participants on the first day of the plan year.
Exemptions to Form 5500 and SAR filing:
- Church plans that are defined under ERISA Section 3 (33).
- Governmental plans, including tribal governmental plans.
- Top-hat plans that are unfunded or not insured and only benefit a select group of management or highly compensated employees.
small insured or unfunded welfare plans (A welfare plan with fewer than 100 participants at the beginning of the plan year is not required to file an annual report if the plan is fully insured, entirely unfunded, or a combination of both.)
- A plan is considered unfunded if the employer pays for it entirely from its general funds.
- A plan with a trust is considered funded. If the employer pays the cost of the plan from general assets, then it is considered unfunded and essentially there is no trust. If the employer pays the cost of the plan from a specific account (in which plan participant contributions are segregated from general assets), then the plan is considered funded.