By: HUB's EB Compliance Team
Each year, many plan sponsors unknowingly submit Form 5500 filings that contain errors, omissions or outdated information. The Department of Labor (DOL) treats an incomplete filing the same as not filing at all, which means even minor mistakes can result in significant penalties. Currently, those penalties can exceed $2,739 per day for late or deficient filings. The good news is that most common errors are preventable with the right preparation. This bulletin highlights common mistakes and offers practical guidance on how to avoid them.
Not filing when a filing is required
One of the most prevalent errors is simply failing to file at all. Plan sponsors sometimes assume that because their plan is fully insured, small or administered by a third party, no filing obligation exists. Under ERISA, a health and welfare plan with 100 or more participants on the first day of the plan year must file a Form 5500 (as well as other nuances explained in the prior bulletin Who Must File Form 5500 for Health & Welfare Plans | HUB International).
Participant count includes not only actively enrolled employees, but also former employees enrolled under COBRA and retirees receiving benefits. When multiple benefit plans are combined under a single ERISA plan document (sometimes called a "wrap" plan), the participant threshold is measured across all lines of coverage combined, not each benefit type separately. Plan sponsors should verify their participant count each year using payroll records cross-referenced with enrollment data rather than relying on carrier reports alone.
Inaccurate or inconsistent participant counts
Participant count errors are among the most frequently flagged issues during DOL review, and the rules for counting can be counterintuitive. For health and welfare plans, the Form 5500 participant count reflects enrolled employees, COBRA continuants and retirees with continuing coverage. Dependents covered under an enrolled employee’s election are not counted separately. A covered employee with three enrolled dependents counts as one participant, not four.
Individuals who are merely eligible but not enrolled are excluded from the count. When multiple benefit lines are combined under a single plan number (a wrap plan), the participant count must reflect the total number of individuals enrolled in any coverage under that combined plan, not each benefit type in isolation. This means the count can be higher than it would appear if looking at any one line of coverage alone.
In rare cases, such as when a dependent loses coverage due to an employee’s death or divorce and continues coverage independently through COBRA with no employee on the plan, that dependent may be counted as a participant in their own right. These situations are uncommon and fact-specific; plan sponsors who encounter them should consult legal counsel. Errors in participant counts can affect whether a filing is required at all and whether a Schedule H financial statement must be attached.
Missing or incomplete Schedule A
Schedule A is required for each insurance contract that provides benefits under the plan. Insurance carriers are obligated to furnish Schedule A data to the plan administrator within 120 days following the end of the ERISA plan year, but delays are common. Plan sponsors sometimes file their Form 5500 before all Schedule A data has been received, resulting in an incomplete or inaccurate filing. It is important to track outstanding Schedule A information from each carrier proactively and, if necessary, file an extension using Form 5558 to allow time to gather complete data.
If a carrier ultimately fails to provide the required information despite the plan sponsor’s efforts, the plan sponsor may still file using a placeholder entry on Schedule A, Parts IV Lines 11 and 12, noting the carrier’s non-compliance. In that circumstance, the DOL will not penalize the plan sponsor for the missing carrier data. A filing submitted without required Schedule A attachments and without such documentation will be treated as incomplete by the DOL.
Misapplying Schedule C requirements
Schedule C is a section of the Form 5500 that reports compensation paid to service providers such as brokers, consultants and third-party administrators. Errors go in both directions: some plan sponsors include it when it is not required, and others omit it when it is.
For most employers sponsoring a health and welfare plan, Schedule C will not apply. Health and welfare plans that are fully insured or unfunded (meaning benefits are paid directly from the employer’s general assets rather than through a trust) are generally exempt from Schedule C reporting. Because this describes the majority of employer-sponsored health and welfare plans, Schedule C is not a routine obligation for most plan sponsors. Including it unnecessarily can create a misleading picture of plan expenses.
Small plans filing Form 5500-SF are also not required to complete Schedule C. For the narrower category of health and welfare plans that are funded through a trust and have 100 or more participants, Schedule C may be required. Even then, it is only required when a service provider received $5,000 or more in compensation connected to the plan during the plan year. That compensation must be tied to plan-related services specifically, not merely to the broader employer-vendor relationship.
When Schedule C does apply, the analysis must account for both direct and indirect compensation. Direct compensation is paid by the plan or the plan sponsor on behalf of the plan. Indirect compensation comes from outside sources, such as fees, commissions or revenue sharing paid by a carrier or other third party to a service provider in connection with plan services. Indirect compensation is a common source of errors because plan sponsors may not be aware of what their service providers are receiving from carriers or other parties. Plan sponsors who are uncertain whether Schedule C applies to their plan should work with their service providers and legal counsel to conduct a thorough analysis before completing or omitting it.
Filing late without using an extension
For calendar-year plans, the Form 5500 is due by July 31 of the year following the plan year. Plan sponsors can obtain an automatic 2.5-month extension by filing Form 5558 before the original due date, which moves the deadline to October 15. A separate automatic extension may also be available if the employer’s federal income tax return has been extended past the Form 5500 due date, provided the plan year matches the employer’s tax year and a copy of the tax extension is kept with the plan’s records.
Plan sponsors often miss these deadlines because Schedule A data arrives late from carriers or third-party vendors need more time to prepare the filing. Filing even one day late without an approved extension can trigger DOL penalties. If a plan sponsor discovers a late or missed filing from a prior year, the DOL’s Delinquent Filer Voluntary Compliance Program (DFVCP) is available and significantly limits penalty exposure. Importantly, DFVCP is only available before the DOL notifies the plan sponsor of a failure to file. Once the DOL has initiated contact, the program is no longer accessible.
Incorrect plan characteristic codes
Form 5500 requires plan sponsors to enter plan characteristic codes that describe the type of benefits offered and how the plan is funded and administered. These codes provide the DOL with a detailed picture of the plan's structure. Errors in these codes are common, particularly when a plan adds or removes a line of coverage during the plan year, transitions between fully insured and self-funded arrangements or implements a Health Reimbursement Arrangement alongside a group health plan. Incorrect codes can trigger questions from regulators and, in some cases, affect how the filing is classified. Plan sponsors should review the current year's instructions carefully and update their codes whenever the plan's design changes.
Takeaways
Avoiding Form 5500 errors requires ongoing attention throughout the plan year, not just at filing time. Plan sponsors should maintain organized records of participant data, service provider compensation, insurance contracts and plan documents well in advance of the filing deadline. Partnering with an experienced vendor to assist with preparation can reduce the administrative burden, but the responsibility and liability for the accuracy of the filing remain with the plan sponsor.
If you have any questions, please contact your HUB advisor. View more compliance articles in our Compliance Directory.
NOTICE OF DISCLAIMER
Neither HUB International Limited nor any of its affiliated companies is a law or accounting firm, and therefore, they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on HUB International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect, and HUB International does not have an obligation to update this information. You should consult an attorney, accountant or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.