Form 5500 is due seven months after the plan year has ended. In order to be granted an extension, the Employer/Plan Sponsor must send the IRS a Form 5558 for each ERISA plan subject to Form 5500 obligations. The Form 5558 needs to be postmarked by the original due date or it will be rejected and the extension will not be granted.
If an extension is granted, failure to file the Form 5500 by the extension deadline will result in a $50 per day penalty assessment back to the original Form 5500 deadline.
For example: You file Form 5558 and request an extension for your calendar year plan until 10/15/2020. You miss the deadline, but file your Form 5500 until 10/20/2020. In this scenario, the $50 per day penalty assessment will apply back to the initial 7/31/2020 deadline date, not just the 10/15/2020 extension date.
Please review our Compliance Buzz Article 5500 Filing Season is in Full Swing with information on who is required to file, filing deadlines, and how to file an extension.
Remember, failure to file Form 5500 or late filing of Form 5500s can be
costly for employers as daily penalties are assessed for late or missing filings.
What should an employer do if they never filed a Form 5500 or failed to file by the deadline?
First and foremost, if you have not yet passed your Form 5500 filing deadline, file for an extension to gain additional time to prepare Form 5500. Please review our 5500 Filing Season is in Full Swing Compliance Buzz Article for information on how to do so.
If the deadline has already passed, employers should consider their risk tolerance, the number of plans they have not filed, and the potential penalties to determine what the best course of action is for them.
Employers have three options available to them:
- Do not file
- File late
- File late with Voluntary Compliance Program
Do Not File
Employers can opt to not file and hope that no one questions them if they are audited. There is a potential consequence of $300/day for each plan (per plan, per plan year) that did not get filed or get filed on time. Penalties cap at $30,000 per year. Keep in mind that the Department of Labor has the authority to impose a $2,233 penalty per day for failure or refusal to file a Form 5500.
This assumes that the employer did not file an extension. Employers can opt to file late and hope that no one notices. There is a potential consequence of $50/day for each plan (per plan, per plan year) that is filed late. There is no penalty cap in this situation.
Keep in mind, that the Department of Labor (DOL) has the authority to assess a penalty of up to $2,233 per day.
File Late with Voluntary Compliance Program
Employers can opt to file late under the Delinquent Filers Voluntary Compliance Program (DFVCP). Use of the DFVCP is contingent on an employer taking steps to remedy the late or missing filing before it is discovered in the event of an audit. Under the DFVCP, penalties are significantly reduced and there is late fee of $10/day for each plan (per plan per plan year) that is filed late. Penalties are capped at $2,000 per large plan/$750 per small plan. This is the penalty if an employer has a single plan year that is delinquent or the delinquent Form 5500s are filed at separate times. The penalty is assessed per each ERISA plan that is delinquent. The maximum penalty for employers with multiple plans, that file more than 1 delinquent plan year per plan number filing at the same time, is $4,000 per plan for large plans and $1,500 for small plans. All form 5500s must be signed and submitted on the same day to qualify for this bundled penalty.
Form 5500 and Delinquent Filing Assistance
Employee Benefits Corporation can assist employers with the preparation of their delinquent Form 5500s as part of our Compliance Services offerings. After signing and submitting the prepared Form 5500s, employers will pay the DFVCP penalties directly to the DOL online as part of the process.
The Bottom Line
We can help educate employers on the risk factors associated with each approach and assist, if contracted to do so, in the preparation of the Form 5500s. Employers may also need to consult with a tax advisor to determine the best plan of action for this circumstances. Please contact email@example.com for more information.