10 things benefits pros should know about 5500s but probably don’t
#10 Employers with a health and welfare benefit plan with 100 or more participants on the first day of the ERISA plan year are required to file an annual Form 5500 and related schedules.
Employers with fewer than 100 participants are generally not required to file an annual Form 5500 unless the benefits are funded through a trust or a Multiple Employer Welfare Arrangement (MEWA). If the ERISA Plan is under a Trust or MEWA, the Form 5500 is required to be filed regardless of the number of participants. Additionally governmental and true church plans [as defined under ERISA section 3(33)] are exempt from the filing requirements. Please note: Participant counts for a health and welfare Form 5500 include enrolled employees, former employees enrolled under COBRA, retirees (if applicable) and those eligible for COBRA but have not yet elected coverage.
#9 Mega Wrap Plan Document can simplify Form 5500 Filing.
The Mega Wrap document is used to wrap the required ERISA language around a carrier’s certificate of coverage and combine or bundle many employer-sponsored benefits into a single Plan. Without a Mega Wrap document, each benefit is a standalone ERISA Plan. The reporting threshold needs to be checked for each benefit. The benefit plan(s) that met the reporting threshold (see #10 for reference), each are required to file a Form 5500 report. If the employer uses a Mega Wrap document to combine them into one plan, they only need to file a single Form 5500.
#8 Employers have up to 7 calendar months after their ERISA Plan Year renewal date to file.
The Form 5500 must be filed by the last day of the seventh calendar month after the end of the plan year. For calendar year plans, this is July 31 (assuming it falls on a business day). However, a Form 5558 can be filed for a 2½ month extension. The Form 5558 must be filed with the IRS on or before the due date of the Form 5500 as well as attached to the Form 5500 when the Form 5500 is filed. [There are also other extensions based on the federal income tax extension or if the IRS, DOL or PBGC grant a special extension such as for Presidentially-declared disaster relief.]
#7 If the PEO noted itself as a single employer, then there is no information in the Form 5500 to state who is a part of the PEO.
On the other hand, if the PEO file their Form 5500(s) as a Multiple-Employer because they have a MEWA, they are required to attach the list of participating employers in the MEWA. The attached list is connected to the 5500 filing as a PDF and would be available for review when the filed 5500 is downloaded.
#6 If a US-based company hires a foreign national working on US soil, the foreign national would be counted if he/she is enrolled in the benefits as a participant of the ERISA Plan.
The Form 5500 instructions specify to count the enrolled participants of the Plan. The instructions do not clarify the status of a participant such as stating they are only to be US citizens. Therefore the Office of the Chief Accountant, a division of the Employee Benefits Security Administration (EBSA) which is responsible for administering and enforcing the fiduciary, reporting and disclosure provisions of Title I of ERISA, stated that if the Plan Sponsor allowed the foreign nationals to enroll as a participant in their ERISA Plan, they too would be counted for the Form 5500. Please note: There is very little information under ERISA on international plans, foreign nationals, etc. The best practice to determine status is to seek the advice from an ERISA attorney.
#5 Self Insured plans such as a healthcare Flexible Spending Account still would require a Form 5500 if the reporting threshold has been met.
True, a self-funded plan does not generate a Schedule A since premiums are not paid to an insurance carrier. Instead the Plan Sponsor allocates general assets to cover administrative only fees to the Third Party Administrator (TPA). Never the less, the Form 5500 (the three page document) is still required to be e-filed. This provides the DOL knowledge of the number of enrolled participants, funding arrangements, and benefits covered by the Plan.
#4 Voluntary benefits may still be reportable even if the employee pays for the entire premium. If the Plan Sponsor endorses the benefit it would more than likely be under ERISA.
Conditions that are considered endorsement include: employer program recommendation, insurer selection, rates, terms or design, and information distribution regarding the voluntary program with other employer offered ERISA benefits, including the voluntary program in the employee handbook. Sending premiums notices, assuming liabilities for premium payments, collecting premiums through their Section 125 plan, as well as other conditions may impact the definition of endorsement.
#3 Employers who have delinquent welfare benefit Form 5500s can enroll in the DOL Delinquent Filer Voluntary Compliance Program (DFVC) and cap the amount of assessed penalties.
The Department of Labor’s Delinquent Filer Voluntary Compliance program (DFVC) caps a multiple year filing penalty at just $4,000 per Plan; if not used and the EBSA investigates to find a delinquent filing, a “Failure to File” letter will be issued. As a result, significant civil penalties to a Plan Sponsor will be imposed (for the maximum penalty amount, see #1):
#2 In FY 2015, EBSA determined that 67% of the ERISA Health and Welfare as well as Pension Plans that were audited had an ERISA violation.
The EBSA continues at a pace close to 2,500 audits per year on Plan Sponsor’s Employee Benefit Plans. Ultimately the audit is to protect the enrolled participants and ensure that the integrity of the Employee Benefit Plan is intact. As a result, the penalty fees, benefits recovered, voluntary compliance fees, etc. collected reached $696 million in 2015.
#1 Effective August 1st, the DOL issued a new penalty amount for a refusal or failure to file a Form 5500.
The new penalty fee is up to $2,063 per day that the Form 5500 is late (previously it was up to $1,100 per day). The fee would be applied for the following reasons: Failure or refusal to file the annual report (Form 5500) required by ERISA §104 or Failure of a multiemployer plan to certify endangered or critical status under ERISA § 305(b)(3)(C) treated as failure to file annual report. The rule’s catch-up adjustments apply to penalties assessed after August 1, 2016, whose associated violations occurred after November 2, 2015, the enactment date of the 2015 Inflation Adjustment Act.
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