Government filings are an important part of maintaining an employee benefits retirement plan. The DOL and IRS require the plan sponsor of 401(k) plans to file a Form 5500 annually as part of Title I of ERISA. The Form 5500 is designed to provide the Federal Government with plan related information. While this may sound daunting, it’s actually a pretty streamlined process for most employers since service providers typically file the Form 5500 on their behalf. However, plan sponsors do have a fiduciary responsibility to ensure the information reported on the Form 5500 is accurate and timely.
Here’s what you need to know about the Form 5500
Three types of Form 5500s are available:
- Form 5500: This is known as the Annual Return / Report of Employee Benefits Plan. It provides detailed information about the plan’s financial status, operations, participant count, and investments.
- Form 5500-SF: This is a shorter version of the Form 5500. It’s available to small plan filers, which are plans with less than 100 people on the first day of the plan year.
- Form 5500-EZ: This form is available for “one participant plans” or solo 401(k)s. It covers the owners of a company and their spouses.
Making sure you’re using the right form is important since it determines whether your plan will undergo an audit or not. So how do you know which form to use?
Large plans are required to file the Form 5500. A large plan is one that has more than 100 plan participants on the first day of the plan year.
Smaller plans with less than 100 people on the first day of the plan year can file the shorter form, the Form 5500-SF, if they meet the following requirements:
- The plan has less than 100 participants on the first day of the plan year
- The plan is eligible for the small plan audit waiver
- The plan holds no employer securities
- All of the plan assets have a determinable market value
- The plan is not a multi-employer plan (MEP)
Plans that have between 80 and 120 participants may file the same form as the previous year. For example, a company with 110 participants at the beginning of the plan year can choose to either file the Form 5500 or the Form 5500-SF, if the Form 5500-SF was used in the prior. Without the 80/120 Transition Rule, the company would be required to file the Form 5500 and undergo an audit.
One-participant plans are the only ones permitted to use the Form 5500-EZ. A one participant plan:
- Covers only you (or you and your spouse) and you (or you and your spouse) own the business
- Covers one or more partners in a business partnership
- Only provides benefits to you + your spouse or your partner + their spouse
- The plan cannot be aggregated for compliance testing purposes
What Information Do I Need to Include?
The Form 5500 is pretty structured, so you don’t have to worry about forgetting to include something. It asks for general information about the employer and the plan as well as the number of participants, types of benefits provided, operational activities, and plan funding. For the Form 5500, schedules that provide more detailed financial information may need to be included as well.
If you’re a large plan filer, you’ll need to include an audit with your Form 5500. This should be done by an independent CPA firm.
You may also need to file the Form 8955-SSA with the Form 5500. This form lists the employees that have terminated from the plan with a vested balance. The form goes to the Social Security Administration, which then contacts the terminated participant notifying them of their account balance.
How Do I File the Form 5500?
The Form 5500 and Form 5500-SF are filed electronically using the DOL’s EFAST2 processing system.
The Form 5500-EZ must be filed with a paper copy. If you want to file it electronically, you’ll need to use the Form 5500-SF and just fill out the sections that pertain to the Form 5500-EZ.
When Do I File the Form 5500?
It must be filed the last day of the seventh month of the plan year. So if your plan is running on a calendar year, July 31st is the deadline. If you need more time, don’t worry. You can file a Form 5558, which is an extension that grants you an extra 2.5 months. So your new deadline would be October 15th.
What Happens If I don’t File My Form On Time?
Unfortunately, there are penalties available for late filings. The DOL notifies you of any late filings and associated penalties which are:
IRS Penalty: $25 per day with a maximum of $15,000
DOL Penalty: up to $1,100 per day with no maximum
If you notice you’re past the deadline, you can undergo the DOL’s voluntary correction program (DFVC) to file your late Form 5500.
What Else Do I Need to Know?
Once you’ve filed the Form 5500, you’ll need to distribute a Summary Annual Report (SAR) to your participants. It’s a report that details the value of your company’s assets, the administrative costs associated with the plan, and any distributions paid to participants and beneficiaries. It also notifies plan participants of their right to receive a copy of the Form 5500.
You’ll need to provide the SAR to your participants no later than 9 months after the end of the plan year. If you’ve filed a Form 5558 requesting an extension, you’ll need to provide the SAR to your participants 2 months after the extended deadline, December 15.
We Can Handle the Form 5500 For You
As your service provider, we’ll prepare a signature-ready Form 5500 for you.
Have more questions? Contact us.