New Form 5500: Employer Plan Compliance — Now and Later

Compliance.BLOGBig changes are coming with respect to compliance. Employer plans have to file the annual Form 5500 on all Employee Retirement Income Security Act (ERISA) retirement plans and many health and welfare plans. The three federal agencies that oversee employer plan compliance–the IRS, Department of Labor (DOL), and Pension Benefit Guarantee Corporation (PBCG)–have combined to expand the Form 5500 Reporting Process.

“The proposed form changes and related regulatory amendments are important steps toward improving this critical enforcement, research, and public disclosure tool,” said Phyllis Borzi, assistant secretary of the Employee Benefits Service Administration. There will be several steps before the finished product is provided, so now is the time for employers to look closely at their current compliance and take opportunities to correct any missing or delayed items.

2016 Matters

Increased Penalties for Non-Compliance

Penalties for not complying with the Form 5500 filing requirements have always been onerous, yet have just increased to almost double. While formerly up to $1,100 per day for late filing, the new fee schedule, which took effect August 1, 2016, has increased missed or late filing penalties to a maximum of $2,063 per day.

Employer Action Steps

  • First, double-check to confirm that you have a record for each annual Form 5500 filed on every ERISA-qualified retirement plan you sponsor (pension, 401(k), 403(b), savings, profit sharing, etc.).
  • For any plan that has 100 or more participants, ensure that the annual audit report from an independent outside audit firm was also filed with the Form 5500.
  • Employer health and welfare plans that are self-insured, held in trust, or that have 100 or more participants must also file and retain copies of the annual Form 5500.
  • The DOL still offers corrective programs for employers who do not have a record of having filed (or e-filed) Form 5500 on each ERISA plan requiring one. Should you discover any missing Form 5500 filings or audit reports that were due, you ought to consider the Delinquent Filer Voluntary Compliance Program (DFVCP). For more information, see or contact your ERISA attorney or adviser. In some cases, employer plan sponsors can pay lower penalties by taking corrective steps outlined in the DFVCP. For example, if a plan fails to timely file Form 5500, the sponsor, under certain circumstances, can pay a significantly lower penalty amount by filing the late annual reports through the DOL’s DFCVP or amend a previous filing to include the mandated audit report.
  • Next, conduct an internal plan review using the 2015 Form 5500 compliance questionnaire. The 2015 Form 5500 revision includes a list of compliance questions that, to be answered, will require employer sponsors to better understand their fiduciary obligations and also improve ongoing compliance with non-discrimination testing. While this initial list of compliance questions was published on the 2015 Form 5500, the agencies are directing employers not to answer them on their 2015 filings. They will be revised in the future. However, it is helpful to review the questions with regard to your current retirement plan to ensure you can adequately respond to each one. For those questions that may be unclear or concerning, address the issue now before the revised and finalized list of compliance questions is published. Ultimately, the questions will be used by the agencies to trigger specific plans for audit or further investigation.
  • Be sure to follow up on any errors or uncertainties with respect to your plan after you have reviewed the 2015 Form 5500 questions. In addition to the DFVCP, the DOL and IRS both offer corrective programs for you to disclose errors and protect yourself from future fines, penalties, and potential disqualification.

Future Form 5500 Matters

The changing employee benefit regulations, financial market sectors, and increased litigation requires the federal agencies to update and broaden the detail, amount, and type of information to be reported on the Form 5500. The proposed changes recently published will take time to further develop and refine. An initial review of these revisions may give one the impression of an increased workload for employer plan sponsors. Yet, if implemented properly, the ultimate impact could be very helpful, as the changes will increase employer understanding and peer comparison of service, investment provider obligations, and plan fees, ultimately enhancing management compliance, fee transparency, and participants understanding.

The federal agencies describe the changes as a way to modernize the financial statements and investment information filed about the plans, including even the smallest health and welfare plans which were historically exempt from filing. The expansion will include more disclosure on service provider fees and fund expense information will enable plans and the public to compare themselves to their selected competitor group. The compliance questionnaire regarding operations, service provider relationships, and financial management of the plan will expand accessibility and standardize usability of data as well as require reporting by all group health plans covered by Title I of ERISA.

The proposed regulations will also make improvements to the certification requirements for the limited scope audit requirements under 29 CFR 2520.103-8 and allow group health plans to use the Form 5500 to satisfy certain reporting requirements in the Affordable Care Act. Finally, the changes will hopefully remedy the form’s current gaps in collecting data from ERISA group health plans.

While incremental changes are expected, the full scope of revisions will apply for plan years beginning on or after January 1, 2019. The long implementation involves both the review and improvements based on public comments as well as coordinating the full implementation with the federal electronic filing system, referred to as EFAST, which will also be upgraded following completion of a procurement process. Look to future MSEC Bulletin Compliance articles for key changes as this process unfolds.