Are you a business owner who offers a 401(k) plan? If so, you need to be aware of the reporting requirements. Form 5500 was created by a joint effort between the Internal Revenue Service (IRS), the Department of Labor (DOL), and the Pension Benefit Guaranty Corporation (PBGC). It was created to meet the requirements of the Employee Retirement Income Security Act of 1974 (ERISA).
The ERISA Law sets the minimum standard for most voluntarily established retirement and health plans in private industry and serves to provide protection for individuals and their beneficiaries in these plans. In other words, Form 5500 protects 401(k) participants and their beneficiaries from any mismanagement.
You must file form 5500 if your 401(k) plan has more than $250,000 or has more participants than you and your spouse. Form 5500 is actually part of a series of 3 forms: the 5500-EZ, the 5500-SF, and the 5500, and each has different filing requirements. ALL are filed by the employer who originates the 401(k) plan.
Form 5500-EZ is for one-participant 401(k) plans. This is a 401(k) plan that only covers the business owner and their spouse. The only exception to filing this form is if you have less than $250,000 in plan assets as of the last day of the plan year. If this describes you, you do not need to file any version of Form 5500.
Form 5500-SF is set apart for small 401(k) plans. This short form is for plans that cover fewer than 100 participants as of the first day of the plan year. According to the IRS, an annual return must be filed even if the plan is not “tax qualified,” benefits no longer accrue, contributions were not made during the plan year, or contributions are no longer made. This includes profit-sharing plans, stock bonus plans, and money purchase plans.
Form 5500 is required for plans that cover more than 100 participants and small plans that don’t meet the requirements for the 5500-EZ or 5500-SF.
Any version of Form 5500 is due by the last day of the seventh month following your plan’s year-end date. (This is July 31 if you have a calendar year plan.) You can file for a 2.5 month extension.
There are steep penalties if you do not file Form 5500.
• The IRS charges $25 per day with a $15,000 maximum penalty.
• The DOL charges up to $1,100 per day with no maximum.
Fortunately, if you discover you’ve forgotten to file Form 5500, the DOL allows you to file a late return as part of their Delinquent Filer Voluntary Compliance Program (DFVCP). This reduces your fine to a lower, flat penalty amount.
If you have questions about navigating Form 5500, let us help. Forgetting this filing is one of the most common mistakes for employers offering a 401(k) program.