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Employment Resources


By January 1, 2008No Comments

Form 5500 filing is an essential part of any employee benefit plan sponsor’s compliance responsibilities. These annual reports, required to be filed with the Internal Revenue Service (IRS) and Department of Labor (DOL), provide information to these agencies on employee benefit plans that are subject to ERISA.

Unless the type of plan or plan sponsor meets a Form 5500 filing exception (for example, certain insured and unfunded welfare plans sponsored by small employers, and church plans, are among those not subject to the Form 5500 filing and disclosure requirements), substantial penalties can apply for failing to file the annual report. Penalties can be assessed against late filers — those filing after the deadline — and non-filers. Incomplete forms, such as those missing any required schedules or which are not signed or dated, are not considered properly filed until these errors are corrected. Penalties from the IRS can run as high as $25 per day, up to $15,000, and those from the DOL can run up to $1,100 per day, with no maximum.

Most failures to file a Form 5500 when due are not willful. An employer might be under the mistaken impression that a certain plan it sponsors does not require a filing, or it might overlook the deadline on account of other more pressing business concerns, or it might file the 5500 but forget to attach a required schedule. When the plan sponsor then discovers the oversight, it could be in a quandary as to how to proceed — especially if a significant amount of time has passed since the filing deadline — knowing that a late filing will bring on potentially sizable penalties.

In an effort to encourage voluntary correction of these inadvertent non-filings, the DOL offers the Delinquent Filer Voluntary Compliance Program (DFVC). The program is designed to encourage plan sponsors, or their administrators, to file overdue annual reports by assessing a reduced penalty instead of the penalty amount that would otherwise apply. For example, the basic penalty under the program is $10 per day for delinquent filings, with the maximum penalty of $750 for a single late report for a small plan (generally, a plan with fewer than 100 participants at the beginning of the plan year) and $2,000 for a large plan. In the event that a report has not been filed for several years, the program also has a per-plan cap, which generally limits the penalty to $1,500 for a small plan and $4,000 for a large plan, regardless of the number of late reports filed at the same time for a single plan.

Although the program is offered by the DOL, the IRS also provides penalty relief for late Form 5500 filings that meet the requirements of the DFVC program.

The DFVC program is only open to plan sponsors that have not been notified in writing by the DOL of Form 5500 filing noncompliance. The plan sponsor calculates the applicable penalty and submits it at the time of the DFVC filing, which must include the late report(s) and any required attached schedules. The plan sponsor or administrator is liable for the required penalty, and cannot pay it out of plan assets. By paying the penalty under the DFVC program, the plan sponsor or administrator waives the right to contest the penalty amount at a later date.

Given the steep penalties that can apply for neglecting to file 5500s for the employee benefit plans you sponsor, all employers would be well-advised to ensure that they are up to date with this annual requirement. If you have not filed reports for any plans believing that they are not subject to the annual reporting and disclosure requirement, consider double-checking with your company’s employee benefits, tax or accounting professional to make sure that this indeed is the case. If you’ve overlooked meeting the filing requirement for any plan, see if you can use the DFVC program to keep your penalties in check.