WHAT IS A 5500?
Simply, a 5500 is a form; an annual report that employers will use to file. This one (1) form includes four (4) schedules for pensions and six (6) schedules for financials.
WHY DO WE HAVE IT?
In 1961, President John, F. Kennedy created a committee to reform the way corporate pension plans were managed. The creation of this committee came about from public pressure and momentum after the Studebaker Corporation close its plant in1963. When the plant closed, it was revealed that the company’s pension plan was so poorly funded that Studebaker could not afford to provide all employees with their promised pensions. Studebaker would eventually settle with most of its employees but even so, more than 2,500 employees would, in the end, receive no pension.
This started a chain of Congressional investigations and committee hearings whose focus was the mismanagement of these promised funds to employees. By 1972, after years of public hearings, an hour-long NBC television special titled “Pensions: The Broken Promise” highlighted how millions of Americans were impacted by the consequences of poorly funded pension plans and vesting requirements. The public pressure became enough that in 1974, President Gerald Ford signed the Employment Retirement Income Security Act, which became the framework for the 5500 reporting requirements employers today are subject to.
WHAT IS ITS PURPOSE?
ERISA, as we know it today, requires employers who provide certain pension (retirement) and welfare benefit plans (health plans, etc.) to report the specifics of the plan benefits, participation, funding sources, and more. ERISA ensures that private industry pension and health plans meet certain minimum standards. Under ERISA, employees must be notified of benefit plan terms, including funding, coverage, and costs. Employees are also offered protections against fiduciary wrongdoing. This law gives Plan participants or the DOL the ability to sue plan fiduciaries if plans are mismanaged or if plan fiduciaries engage in conduct prohibited under ERISA.
WHO IS IN CHARGE OF ERISA?
The ERISA administration is split between the U.S. Department of Labor (DOL), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC).
WHAT EMPLOYERS NEED TO KNOW.
Most employers know they need to file annual Form 5500 for their retirement plans, but not all
understand that other benefits (such as medical, dental, vision, life insurance, disability, accidental death and dismemberment, severance pay, etc.) may be considered “welfare benefit
plans” under ERISA; and therefore require their own 5500 filing.
WHO IS REQUIRED TO FILE?
Employers who provide qualified 401(k) retirement, 403(b) plans subject to ERISA, health/welfare plans covering more than 100 participants, and any welfare plan that is funded through a trust (regardless of participation count) are subject to filing the Form 5500. These forms must be filed electronically.
WHO IS REQUIRED TO FILE?
Form 5500 and its accompanying schedules must be filed with the Employee Benefits Security
Administration (EBSA) on or before the last day of the seventh month following the close of the plan year. This is generally July 31 for calendar-year plans.
WHAT ARE THE PENALTIES FOR NON-COMPLIANCE?
Penalties for noncompliance are stiff and are adjusted annually for inflation (U.S. DOL EBSA Fact Sheet). There is also a delinquent filer voluntary compliance program designed to encourage voluntary compliance with the annual reporting requirements. The program gives delinquent plan administrators a way to avoid potentially higher civil penalty assessments by satisfying the program’s requirements and voluntarily paying a reduced penalty amount.
The Employee Benefits Security Administration (EBSA) is responsible for ensuring ERISA compliance. In fiscal year 2021, EBSA recovered over $2.5 billion for plans and participants through audits. Last year alone, EBSA closed over 1,000 civil investigations with 741 (69%) resulting in monetary penalties from employers. EBSA also closed 208 criminal investigations resulting in 72 indictments, all while opening another 188 cases. The point? Not filing these forms has some serious penalties for employers.
WHAT HAPPENS IF AN EMPLOYER REALIZES THEY HAVE FAILED TO FILE THEIR 5500?
If an employer realizes that they are required to file but have not, it’s important that the company go back and file a Form 5500 for every year and for every welfare benefit plan required as soon as possible to minimize penalties. Penalty exposure for late Forms 5500 includes DOL penalties of $2,233 per day (as indexed, with no limit) and IRS penalties of $25 per day (limited to $15,000 per return). The DOL has increased their attention on welfare benefit plans where Forms 5500 may not have been filed. This is especially true where an employer files an annual retirement plan Form 5500 that reports more than 100 participants in the plan.
