The filing of Form 5500 is a part of the overall reporting framework of the Employee Retirement Income Security Act of 1974 (ERISA). It provides federal agencies with information regarding the plan sponsor’s operations. It is a mandatory “annual report” that all 401K subscribers must submit by July 31 each year.

The Form 5500 series is a reporting and disclosure tool for the U.S. Department of Labor (DOL) and the Internal Revenue Code. Plan Sponsors are under constant pressure to ensure compliance with the complex rules and regulations amidst increasing scrutiny from DOL.

Plan sponsors seek help from their plan providers or third-party administrators (TPA) to fulfilling their annual filing obligations. Outsourcing Form 5500 filing/preparation allows them to complete the regulatory reporting requirement and evade penalties without the hassle of managing large volumes of data.

What is Form 5500?

Retirement Plan Administrators or employers use Form 5500 to share information about their 401(k) plan’s qualification, financial condition, investments, and operations. It is an annual reporting requirement to ensure the plan implementation is in the best interest of employees. They must abide by the fiduciary responsibility specified in ERISA and the Internal Revenue Code.

Following are the three types of Form 5500:

Form 5500: Applicable for employers with 100 or more plan participants.

Form 5500-SF: Applicable for employers with less than 100 participants.

Form 5500-EZ: Applicable for one-participant plans. This form is required only if the individual’s total plan assets are more than $250,000.

Besides one of the above versions of Form 5500, some plan administrators may need to file some additional schedules such as Schedule A, Schedule H, Schedule I or Schedule R. Filing of these schedules depends upon the employee benefits being offered in the plan.

Challenges in Filing Form 5500

Form 5500 is an important document. It must be completed on time and with accuracy. However, managing a large amount of plan participants’ data through traditional methods is difficult. Manual filing of Form 5500 may lead to several mistakes, from incorrectly reporting benefits, leaving a field blank, miscounting plan participants, or other misinformation.

The lack of understanding of ERISA reporting obligations leads to incorrect and incomplete Form 5500 filings. Delayed filing, incomplete returns, or furnishing insufficient information is bound to attract hefty penalties. Willful violations and intentional misrepresentations will also lead to additional penalties.

A significant challenge is putting together the right team for the process without overspending. Form 5500 filing is an annual procedure and hiring experts in-house for the same is a cost burden on the plan provider. If not outsourced to a competent TPA or filing expert, it becomes an additional workload for the existing retirement plan administrator.

The Risk of DOL Investigation

DOL has mandated the electronic filing of Form 5500, along with all required schedules and attachments. The filing can be completed using IFILE or EFAST2-approved third-party software.

The move has transformed how plan sponsors file the form and provided DOL with a more sophisticated way to review filings. All records can be cross-checked using the plan administrator’s employer identification number (EIN). DOL can analyze the reports to pinpoint plan sponsors that have not filed Form 5500 appropriately.

The new regulations also allow DOL to access information gathered against the information reporting requirements under Internal Revenue Code section 6055 and 6056. Advanced technology enhances DOL’s ability to identify Form 5500 filings that are inaccurate, incomplete, late, or missing.

Penalties Related to Filing of Form 5500

Plan sponsors and retirement plan administrators are subject to penalty from ERISA upon the late or incomplete filing of Form 5500. Any deficiency or discrepancy in the annual reports is subject to penalties.

The due date for filing Form 5500 is on the last day of the seventh month from the end of the plan year or July 31 for a calendar-year plan. Only if July 31 is on the weekend would the due date shift to the next business day. The filing must be done electronically through EFAST2. In case of late filing of Form 5500, the employer is subjected to an IRS penalty of $250 per day up to a maximum of $150,000. Additionally, a DOL fine of up to $2,259 per day with no upper limit is also applicable.

Form 5558 must be filed by the due date of Form 5500 to avail exemption in the filing deadline by 2 ½ months. DOL also offers the Delinquent Filer Voluntary Correction Program (DFVCP). Opting for it helps avoid late filing penalties.

Organizations must establish processes and list down best practices for handling the filing of form 5500. The paperwork may be handled internally or outsourced to an experienced retirement plan administration services provider for timely and efficient filing.

Outsourcing Form 5500 Filing/Preparation

The complexity associated with filing Form 5500 accurately is growing. So are the penalties associated with incorrect or missed filings. It has compelled plan sponsors and administrators to remain vigilant or outsource the process to a third-party vendor.

Form preparation and filing are seasonal processes so hiring a team to handle them is not feasible. Outsourcing form 5500 filing is a better option as it saves the additional expenditure on maintaining an internal team around the year.

Plan sponsors can benefit from the guidance of a Form 5500 preparation vendor. Besides end-to-end filing assistance, reputed vendors bring industry expertise. They support everything from reviewing the accuracy of completed forms to sharing advice on the Form 5500 filing process.

The key services available are:

Quality Assurance Review

The most crucial task is reviewing Form 5500 and Schedules. Vendors review filings for accuracy and examine the correctness of small details, as everything matters. They follow a structured process to verify the information provided in the filing and ensure compliance with DOL guidelines. The focus is on ensuring the appropriate depiction of the plan sponsor’s welfare plan, funding arrangements, and benefit offerings.

Streamline Form 5500 and SAR Preparation (Single and Multiple Plans)

Vendors offer approved software to simplify the Form 5500 filing process. The software aids in preparing electronic returns, facilitates electronic signatures on them, and ensures timely submissions. Alongside filings, they also assist in preparing content-compliant Summary Annual Report (SAR) as specified by DOL.

5500 Filing Consolidation

Vendors can relieve the administrative burden by preparing a strategy for consolidating multiple Form 5500 filings into a single plan. They carefully review the existing welfare plans of the plan sponsor and suggest the ones that can be eliminated or merged. The planning is followed by preparing the appropriate documents for transition.

Assistance with DOL Correction Programs

Plan administrators who have missed filings can opt for DOL correction programs like the Voluntary Fiduciary Correction Program (VFCP) and Delinquent Filer Voluntary Compliance Program (DFVCP). Vendors can help them complete necessary documentation and pay reduced penalties by bringing their plans to the current filing status. The industry expertise of vendors comes in handy in the VFCP and DFVC processing as these are peculiar to handle.

Amended Filings

Filing a Form 5500 with omissions or mistakes also attracts scrutiny and penalties from DOL. Vendors assist filers with amendments and revised filings when needed. They have the knowledge and expertise to select and prepare the correct form for electronic or paper-based filing.

Choosing the Right Retirement Plan Administration Services Provider

Finding the right 401(k) plan administration services provider can be daunting. Consider the following points when finalizing the right partner to meet the plan administration needs:

1. Expertise: Industry knowledge and technical expertise top the list when considering a TPA for retirement plan administration. Ensure they have the experience to understand the plans’ goals and know all compliance requirements.

2. Price: The retirement plan administration service costs may vary for each service provider and would depend on the complexity of the plan. Taking quotes from different providers and clarifying doubts regarding hidden fees will allow picking the best partner as per plan needs. The plan design may also be altered to lower the TPA expenses.

3. Plan Support: Plan administration service providers support different retirement plans, so it is helpful to check if they specialize in the required plan type.

The extent to which tasks related to Form 5500 must be outsourced depends on the plan sponsor’s internal resources. If the in-house team is trained to perform the required functions, a designated plan administrator can help them to prepare and file Form 5500. The vendor will work alongside internal departments such as human resources and payroll. It eases coordination with investment advisers and plan auditors.

Congruent – The Best Partner for Form 5500 Filing/Preparation

In case expertise is needed externally, hiring a qualified retirement plan service provider after a thorough evaluation is best. The vendors must still be monitored under the plan sponsor’s fiduciary responsibility.

Avoid the year-end stress by partnering with Congruent Solutions. We offer specialist plan administration services to help the retirement plan industry of all sizes prepare their sponsors’ 5500 forms. With years of expertise, Congruent uses its experience and well-trained resources to deliver comprehensive 401(k) administration.

Contact our team of experts to discuss your form 5500 filing worries today.

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