The Setting Every Community Up for Retirement Enhancement Act ("SECURE Act"), adopted in December 2019, has increased the penalty that the IRS may impose on plan sponsors who do not timely file Form 5500 (Annual Return/Report of Employee Benefit Plan). Prior to the law change, the IRS could assess a civil penalty of $25 for each day that a Form 5500 was late, subject to a maximum penalty of $15,000. Effective for returns required to be filed after December 31, 2019, the SECURE Act increased the Form 5500 penalty to $250 per day, not to exceed $150,000 for a late-filed form.
In addition to the IRS penalty, the Department of Labor ("DOL") may assess a civil penalty against a plan administrator in an amount not to exceed $1,100 per day for failure to timely file Form 5500.
What Plans Must File a Form 5500?
Qualified retirement plans subject to ERISA must annually file a Form 5500 unless the plan covers only owners of the company. Any welfare benefit plan covered by ERISA, such as a group medical plan, life insurance plan or long-term disability plan, is required to file a Form 5500 unless an exception applies. A welfare benefit plan that covered fewer than 100 participants as of the beginning of the plan year and is unfunded, fully insured, or a combination of insured and unfunded is exempt from filing Form 5500. A company with 101 employees as of the beginning of the plan year that provides group-term life insurance coverage to all of its employees is required to file Form 5500 for that plan year.
What is the Deadline for Filing a Form 5500?
The filing deadline for the Form 5500 is the last day of the seventh month following the plan's year-end (July 31 for calendar-year plans). A company can apply for an automatic 2 ½ month extension of time to file the Form 5500 by filing a Form 5558 (extending the filing deadline to October 15 for calendar-year plans). The Form 5558 must be filed before the due date of the Form 5500.
What to do if You are Late Filing a Form 5500?
Both the IRS and the DOL may waive the late filing penalty if the company can demonstrate that there is reasonable cause for failure to file.
As an alternative, a company that uses the DOL’s Delinquent Filer Voluntary Compliance Program ("DFVCP") pays a reduced penalty to the DOL for the late filing and no penalty to the IRS. The reduced penalty is $10 per day, not to exceed $750 for a single delinquent report for a small plan (generally less than 100 participants) or not to exceed $2,000 for a single delinquent report for a large plan. If multiple reports from multiple years are filed together using the DFVCP, the maximum penalty is $4,000 per plan.
The Dickinson Wright Employee Benefits and Executive Compensation Group can assist you with questions about filing Form 5500 or with making late filings under the DFVCP.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.