What You Should Know Before You File Your Form 5500

There comes a time each year when plan sponsors must file their Form 5500 for all qualified retirement plans. But whether you or a third party will be completing the forms, there are some things you should know, and do, before you click to submit.

Although electronic filing has reduced the amount of errors that were once commonly made back in the manual-filing days (pre-2009), the IRS continues to see mistakes on the forms every year. Unfortunately, e-file software programs are not capable of catching every mistake.

Here are some tips to help you ensure that your Form 5500 is filed properly and in a timely manner:

  • Make sure you have the correct EIN or plan number. As trivial as this sounds, this is an extremely common error. It often occurs when internal changes resulted in the creation of a new EIN, which was not then properly noted. Be sure to keep track of all account or identification numbers.
  • Answers to questions may change. Be sure to answer each question accurately for the year you are filing the Form 5500 since the way in which a question is answered may change from year to year. Many people tend to auto-fill questions based on the form from previous years, as they incorrectly assume the answers have stayed the same.
  • Ensure plan characteristic codes are correct. The Form 5500 has been updated and new codes have now been added for items such as 401ks, auto enrollment, etc. Make sure the proper codes are used on the form.
  • Attach ALL required schedules. The software used to generate the Form 5500 is designed to recognize when a schedule is missing and should be attached, however, many sponsors who do not have a schedule often simply include a note explaining why it’s missing. For example, if a plan audit has not yet been completed, in lieu of the audit report being attached, a memo is attached stating the audit report will be submitted as soon as it is completed. This is still considered an incomplete filing, which can result in penalties.
  • Form 408(b)(2) – Plan Sponsors need to disclose to the party preparing the Form 5500, if they did not receive a 408(b)(2) notice from a Covered Service Provider. Failure to obtain the required notice will result in a prohibited transaction and must be disclosed on the Form 5500. Before signing the Form 5500, Plan Administrators need to review with the document preparer to be sure the prohibited transaction question is answered correctly.
  • Don’t wait until the last minute to submit forms. All kinds of issues can occur during the 12th hour”from your Internet connection suddenly failing or an error message popping up after you submit the form. But regardless of the reason, failure to transmit forms timely can result in penalty, no matter what the cause. If you do need extra time, you can apply for an extended deadline.
  • Any plan that contains assets requires a Form 5500. This includes terminated plans. As long as there are assets held by the Trust, the Form 5500 must be filed. Once all plan assets are distributed, the final Form 5500 is filed. Submission of a final Form 5500 is the only way to remove a plan from the 5500 reporting roster.
  • Address any penalty charge letters immediately. All notices need to be taken seriously and addressed with the IRS as soon as possible. To do so, review your Form 5500 and contact whoever completed the form and have them investigate the issue. Plan Sponsors need to know if they are responsible for responding to the IRS, or if the third party will handle all correspondence. Failure to respond timely to the notice may result in more severe penalties.
  • Filing an Amended Return. Electronic filing allows the Plan Sponsor to file an amended return at anytime should it be discovered that information on the original return was incorrect. It should be noted that the IRS does not, however, allow any type of intentional misfiling.
  • Delinquent Filers – Plan Sponsors who have failed to file the Form 5500 for a plan year, or multiple plan years, need to take advantage of the Delinquent Filer Compliance Program ( DFVCP).To encourage Plan Administrators to file the overdue returns, the DOL established the DFVCP Program which allows Plan Sponsors to file the overdue return(s) and pay a reduced penalty.

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