By: HUB’s EB Compliance Team

Under ERISA, certain employee benefit plans are required to file an annual report with the U.S. Department of Labor (“DOL”) for each employee benefit plan they sponsor. The report provides the DOL with information about the plan, the number of employees participating in the plan, and the types of benefits it offers, among other information. The report is called the Form 5500.

What Plans Must File

All large plans (100 or more covered employee-participants at the beginning of the plan year) that are subject to ERISA must file a Form 5500. The Form 5500 is generally is due seven months after the end of the plan year (subject to certain available extensions of time). All Forms 5500 must be filed electronically. More instructions about filing are available at this DOL website. Information copies of the forms and instructions are available here (note that many of the Schedules apply only to retirement plans, or what the DOL calls “pension benefit plans”).

Who Files

The plan administrator is required to file the Form 5500.  Because of the way ERISA defines "plan administrator," in most cases the employer (as plan sponsor of a single employer welfare plan) will be the plan administrator. If an entity or person other than the sponsoring employer is designated as the plan administrator, then that entity will have the obligation to file the Form 5500. Even if an employer hires a third party to process claims, or a third party to prepare the Form 5500, the employer is likely still the plan administrator. The plan administrator is a fiduciary role under ERISA and most third parties are not willing to assume that role.

Deadlines

The normal due date for Form 5500 is the last day of the seventh month after the close of the plan year (including short plan years). Therefore, the regular filing deadline for calendar-year plans is July 31 of the year following the plan year. If the normal due date falls on a Saturday, Sunday, or federal holiday, the Form 5500 may be filed on the next day that is not a Saturday, Sunday, or federal holiday.

Deadline Extensions 

An extension of up to 2-1/2 months after the Form 5500 due date is available for employers that request an extension using Form 5558 (Application for Extension of Time to File Certain Employee Plan Returns). Form 5558 must be filed with the IRS-not with the DOL. If Form 5558 is filed on or before the normal due date (not including extensions) of the Form 5500, the extension request will be automatically granted; no approval or confirmation is necessary. However, when filing the Form 5500, the plan administrator will need to indicate that it used the Form 5558 to receive an extension.

An automatic extension for filing Form 5500 is granted to the due date of the employer's federal income tax return if the following conditions are satisfied: (1) the plan year and the employer's tax year are the same; (2) the employer's federal income tax return extension was granted to a date that is later than the normal due date for the Form 5500; and (3) a copy of the application for income tax extension is maintained with the filer's records.

The automatic Form 5500 extension based on the tax return due date cannot be extended further by filing a Form 5558. It also cannot be extended beyond 9-1/2 months after the close of the plan year (for calendar-year plans, October 15). The due date for a short plan year typically cannot be extended using this automatic extension because the short plan year probably would not match the employer's corporate tax year. Additionally, as a practical matter, the extension using the Form 5558 is typically a little longer and given the relative simplicity of the Form 5558, filers often opt to use that rather than the tax return extension.

Short Plan Years

For a plan year of less than 12 months (i.e., a short plan year), the Form 5500 and applicable Schedules generally must be filed by the last day of the seventh month after the short plan year ends. All filers of short plan-year returns must use the Form 5500, Schedules, and Instructions for that year. Short plan-year filers should identify the short plan-year beginning and ending dates on the line provided at the top of the Form 5500 and should check the appropriate box in Part I, Line B of the Form 5500 main body. For Form 5500 purposes, the short plan year ends on the date of the change in accounting period or a termination or merger of the plan.

M&A Considerations

One area where Forms 5500 are often forgotten is in the context of transactions. If a plan is terminated in connection with the transaction, a final Form 5500 still must be filed. This often leads to a short plan year and, in many cases, a missed filing deadline.

Additionally, if the buyer continues to utilize the seller’s plan for a period of time after closing, Forms 5500 are still required for all plan years while the plan remains in effect. This is often overlooked. Then, once a seller’s plan is terminated or merged into the buyer’s plan, a final Form 5500 must be filed for the terminated or merged plan.  

Penalties

Missed, or even incorrect, Form 5500 filings can lead to significant penalties. For welfare plans, the DOL is allowed to assess a penalty of $2,233 per day for late filings (for 2020). That number is adjusted for cost of living increases every year.  

The DOL also treats incomplete filings as non-filings, which allows the penalties to run. As a result, it is extremely important to make sure Forms 5500 are filed on time and are complete and accurate. While many employers may rely on third parties to prepare the Form 5500, ultimately the penalties are likely to be the employer’s responsibility.

The good news is the DOL offers a Delinquent Filer Voluntary Compliance Program for employers that have missed 5500 filing deadlines. The DFVCP significantly limits the very expensive penalties associated with a late or failure to file. Therefore, employers who are late in filing or have failed to file, should take advantage of this program.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.