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Here's How to Avoid Getting Penalties in Filing Late of Form 5500

Here's How to Avoid Getting Penalties in Filing Late of Form 5500

Form 5500, 5500-EZ and 5500-SF must be filed on time. In general, filing forms 5500, 5500-EZ and 5500-SF is the responsibility of the plan administrator. Penalties can be expensive, but finding relief through the lessening of these penalties can be done. You must know some basic tricks and tips.

It was the Department of Labor and Pension Benefit Guaranty Corporation and the IRS who jointly develop the Form 5500-series designed for the employee benefit plans as a requirement for annual reporting under the Internal Revenue Code or the IRC and the Employee Retirement Income Security Act of 1974 known as ERISA. Form 5500 must be filed by the plan administrators by the end of the 7th month once their plan year closes.

Usually, some third-party administrators or insurance brokers are being used by companies to prepare their Form 5500 and then file. Plan administrators, as a result, are lenient in preparing accurate Form 5500 of the company and never take it seriously in filing it on time. Some companies never filed Form 5500. Some of these companies don’t know the timelines and how to correctly file these forms.

The minute these companies receive a letter from DOL or from the IRS declaring that they have not filed these forms is when they become conscious of their mistake, and now anticipate the significant penalties they are facing.

Penalties for Form 5500

Section 502(C)(2) of ERISA grants the Secretary of Labor the power to enforce civil penalties on plan administrators up to $1,100.00 if they refuse to file or failed to file Form 5500 correctly and on time. DOL has the power to carry out a higher penalty, but a list of the standard penalties will be listed below for both DOL and IRS.

Filing Late

· IRS Penalty – $25 per day but not more than $15,000.00

· DOL penalty – $50 per day with no maximum value

Failed to File

· IRS penalty – $25 per day but not more than $15,000.00

· DOL penalty – $300 per day but not more than $30,000.00

Other penalties on incomplete filings may also be faced by the plan administrators unless they present a stamen of reasonable cause for failing to completely file the annual report and if the DOL approved it.

Late Filing Penalty Relief for Form 5500

Form 5500 can be filed by the plan administrators electronically with the DOL’s Employee Benefits Security Administration or the EBSA. A letter stating the reason or the cause for submitting the form late must be attached. If the IRS and DOL find the basis to be reasonable, the plan administrators can do away with the late penalties but, if the IRS and DOL are not convinced with the cause, a notice containing the proposed penalty will be sent to the plan administrators. The penalty assessed can be contested by the plan administrators.

An alternative possibility is to partake in the DOL’s Delinquent Filer Voluntary Compliance or the DFVC program. The DFVC program does not abolish all of the penalties but it limits the possible penalties being imposed by the DOL. To be eligible, a complete Form 5500 or Form 5500-SF must be electronically filed by the plan administrators and include all the attachments and schedules for each delinquent year confirming in the form the DFVC label. To determine penalties payable, an online calculator is used. They can utilize the electronic payment method or a check of the same amount is sent to them through the mail.

Filers who satisfies the requirements for DOL’s Delinquent Filer Voluntary Compliance Program may have their assessed late penalties waived by the IRS. These filers have to also file any missing 8955-SSA forms, then complete the requirements for penalty relief and all required documents must be mailed within 30 days after completing the filing of the DFVC program. 

Abatement of Penalties from Form 5500 Late Filing 

Plan administrators need to put in mind that filing annual reports including cash balance TPAs is an important task. These documents must be prepared until the termination of the plan and all funds are paid out. The companies are subject to significant penalties for failing to file the said reports. These penalties can be easily avoided. An internal department may be formed or you can use an outsourced service provider to accurately oversee the filing tasks on a timely basis.

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