How to Review The Form 5500
Sponsoring employee benefits helps businesses attract and retain talent. Form 5500 is a document required for most sponsors, and filing it can present a challenge to compliance due to its variables and requirements. Understanding this form will allow you to comply with authorities and give employees peace of mind that their benefit and welfare plans are being managed responsibly.
What Is a 5500 Tax Form?
Form 5500 is officially called an Annual Return/Report of Employee Benefit Plan. This document shares information about employee benefit plans to the Internal Revenue Service (IRS) and the Department of Labor (DOL) according to annual reporting requirements under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC).
The purpose of the 5500 form is to ensure sponsors share detailed plan information with the government and plan participants. This document ensures the financial condition of their plan, investments and operations comply with ERISA regulations and other applicable laws.
Who Needs to File?
Most employers or plan administrators who maintain an employee benefit plan are required to file Form 5500 annually. This includes retirement plans as well as certain employer-sponsored health and welfare plans. Always consult with a certified public accountant or advisor to determine your specific filing requirements.
Which Plans Are Exempt?
There are several benefit plans that are exempt from filing. Defining an exemption can be complex. If a plan falls into one of the categories but doesn’t meet all the conditions for exemption, it might be required to file. Relying on a professional’s opinion is the best way to ensure compliance and prevent penalties.
The plans that are exempt from filing Form 5500 are:
- Plans established or maintained by government entities or churches.
- Unfunded welfare plans are paid directly from the employer’s general assets.
- Plans maintained for compliance with unemployment, workers’ compensation or disability laws.
- Plans maintained outside the U.S. for non-U.S. citizens and non-U.S. residents.
- Certain one-participant plans.
Types of Form 5500
There are different types of Form 5500 that vary according to plan size, funding arrangement and exemptions:
- Form 5500: This is the standard, most comprehensive Annual Return/Report of Employee Benefit Plan. It is often used for plans with 100 or more participants and must be filed electronically using the DOL’s EFAST2 system.
- Form 5500-SF: The short form is a simplified version of Form 5500, and it’s designed for small plans with less than 100 participants. Plans need to meet certain eligibility requirements and file using the EFAST2 system.
- Form 5500-EZ: This is the simplest version of the form. It is designed for one-participant retirement plans and certain foreign plans. It can be filed electronically or by mail (if required).
Key Information Required for Form 5500
The information you should include in Form 5500 will vary according to the type of plan you provide, the activity that occurred and the number of participants. More complex plans could require more detailed information and additional schedules.
It’s important to gather information carefully and accurately to ensure compliance. To fill out any variation of Form 5500, you will need information about:
- Plan: Plan name, number, year and type.
- Plan sponsor: Name, address and Employer Identification Number (EIN).
- Plan administrator: Name, address and contact information.
- Participants: Number of participants at the beginning and end of the year, as well as their employment status.
- Financial: Assets, liabilities, income, expenses and investments.
- Schedule: Depending on your plan’s characteristics, there are different types of schedules, including A, C, H, I, R, SB, MB and SSA.
Step-By-Step Guide to 5500 Tax Form Preparation
Form 5500 preparation takes detailed planning and data gathering. To make the process less complex, follow these steps.
Determine Which Form to File
The central factor to determine which form to file is the number of participants in your employee benefit plan. Count all employees who are eligible to participate in the plan, even if they aren’t enrolled. Other factors include the type of plan and its eligibility for exemptions.
Gather Required Information
Once you know which form type is right for you, collect all necessary plan documents, financial statements and participant data.
Create a DOL Account
If you are filing for the first time, you will need to register on the EFAST2 website to obtain electronic signing credentials. This way, only authorized individuals can complete Form 5500 on behalf of your organization.
Complete the Form
Log in to EFAST2 and follow the instructions to complete the form and any required schedules. Here you will provide basic identifying information, plan information and supplementary documentation if applicable.
Review and Proofread
A careful Form 5500 review is key to ensuring accuracy and completeness. The EFAST2 platform has a useful “View PDF” option that will give you a preview of your form before submitting. Proofread answers thoroughly to prevent rejection, inaccuracies and penalties.
File Electronically
Submit the completed form and schedules through the EFAST2 system.
Filing Deadlines, Extensions and Penalties
Form 5500 is due on the last day of the seventh month after the plan year ends. For example, if you provide a calendar-year plan, the due date will be July 31. If you need more time to file the form, you can request a two-and-a-half-month extension using a Form 5558 before the original due date.
There are different penalties for late or incomplete filings. The amount can vary if the IRS or the DOL determines that the late filing was due to intentional disregard of the requirements. Main penalties include:
- IRS Penalties: Penalties for late filing without an extension are up to $250 per day and can reach a maximum of $150,000.
- DOL Penalties: These penalties can be up to $2,586 per day and don’t have a maximum limit.
The DOL offers a program called the Delinquent Filer Voluntary Compliance Program (DFVCP). This program allows plan administrators who have missed their deadline to voluntarily correct their error and pay reduced penalties.
Common Form 5500 Mistakes to Avoid
Filing Form 5500 can be a complex and challenging process. Here are some common mistakes to avoid to prevent penalties and extend administrative tasks:
- Incorrectly determining the number of participants.
- Using the wrong form type.
- Missing filing deadlines.
- Inaccurate financial information.
- Failure to include required schedules.
- Not keeping adequate records.
Contact Marshall Jones for Hassle-Free Compliance
Marshall Jones is your trusted accounting expert in the greater Atlanta area. With over 30 years of experience serving individuals and businesses, we know the ins and outs of filing Form 5500. Contact our team online and leave your Form 5500 compliance in the hands of experts.
