Employee benefit plans play a crucial role in providing financial security and healthcare benefits to workers. To ensure transparency and regulatory compliance, the United States Department of Labor requires certain plans to file an annual Form 5500. These plans can include but are not limited to qualified retirement plans, Health & Welfare plans with at least 100 participants, and Cafeteria Plans. However, what happens when an employer misses the filing deadline? Let's explore the consequences and available options for delinquent Plan Sponsors.
Several types of employee benefit plans fall under the purview of the annual Form 5500 filing requirement. These include qualified retirement plans, Health & Welfare plans with at least 100 participants, and Cafeteria Plans. The responsibility for meeting the filing deadline lies with the Plan Sponsor.
In the event of a missed deadline, the plan participants can face taxation on the amounts received, while the plan sponsor can be assessed severe penalties. To navigate this situation, delinquent Plan Sponsors have three options available.
1) Choose not to file
The first option, choosing not to file, may seem tempting initially, but it can have costly consequences. In the event of an audit, the Department of Labor can impose a penalty of $300 per day, per plan, per year. These penalties typically reach a maximum of $30,000 per plan year, adding significant financial strain to the Plan Sponsor.
2) File late
The second option is to file late (without an extension) and hope for the best. However, this approach can quickly accumulate penalties. The employer would be assessed a daily penalty of $50 per plan per year.
The first two options are not recommended as they each result in steep penalties and administrative headaches. Also, the Department of Labor can impose an additional penalty of $2,233 per day in either of the first two situations.
3) File with the Delinquent Filer Voluntary Compliance Program
This is recommended as the preferred option when facing the reality of a delinquent 5500 filing.
Established in 1995, the Delinquent Filer Voluntary Compliance Program (DFVCP) was created to enable plan sponsors to file all the appropriate returns and to pay reduced penalties. This option is cost-saving and administratively efficient.
Under the DFVCP Program, the penalty is reduced to $10 per day per plan. Also, the program has a maximum penalty amount of $2,000 per plan per year, with the overall penalty capping at $4,000 per plan per year. It is important to note that employers can only utilize the DFVCP Program if they have not been notified in writing by the Department of Labor.
In conclusion, missing the filing deadline for Form 5500 can have significant repercussions for both plan participants and employers. To avoid steep penalties and administrative complications, delinquent Plan Sponsors should consider the Delinquent Filer Voluntary Compliance Program. By rectifying their non-compliance through this program, employers can fulfill their regulatory obligations while mitigating financial burdens.
And don’t forget the Form 5500 filing deadline for calendar year plans is July 31!
For more information, see EBIA’s ERISA Compliance manual at Sections XXXII.B (“Correcting Late and Unfiled Form 5500s: Delinquent Filer Voluntary Compliance Program”), XXII.D (“Consequences of Form 5500 Noncompliance”), and XXII.O (“Submitting Delinquent Form 5500s Under EFAST2”).
