What Is Form 5500?Form 5500 is a report that businesses must file annually in order to provide the Internal Revenue Service (IRS) and U.S. Department of Labor (DOL) details about the company’s employee benefit plans. It includes details such as the investments, operations, and conditions of the plan.
A private sector company will need to file a Form 5500 if it has:
- A 401(k) program (or other retirement plan) that is insured or self-insured, and
- 100 or more individuals enrolled in the plan at the start of the plan year.
Form 5500 and Your Small BusinessOne of the most important parts of your company’s Form 5500 is the plan to deposit the deferred salary or wage contributions into the contributing employee’s 401(k) account.
Plan sponsors must deposit contributions as early as possible. Larger businesses with over 100 employees must deposit the funds by the fifteenth business day after the end of the month when the contribution happened. Smaller businesses, however, have an additional seven-day safe harbor period.
Who Needs to File Form 5500?The following plans require their sponsors to file a separate Form 5500:
- 401(k) plans
- Annuity arrangements
- Medical, dental, and life insurance
- Pension plans
- Money purchase, profit sharing, and stock bonus plans
- Severance pay plans
- Retirement arrangements
What Are an Employer’s Form 5500 Filing Requirements?Government bodies use Form 5500 to evaluate the financial health of employee benefit plans. To do this, most forms require the following broad categories of information:
- Schedule A: Information about insurance contracts
- Schedule C:List of service providers
- Schedule G: Financial transaction information
- Schedule H or I: Schedule of financial assets and liabilities
- Schedule R:Schedule of the retirement plan
Form 5500: Three TypesA company will file one of three types of Form 5500 for each account. Those different types are:
1. Form 5500-EZ:This “easy” plan is for solo 401(k) plan sponsors who have more than $250,000 in plan assets on the last day of the plan year. A solo 401(k) is a self-sponsored plan type for business owners who work alone or with their spouse.
2. Form 5500-SF:This form is for companies with fewer than 100 participants on the first day of the plan year. These companies can fill out a simplified version if they also meet these requirements:
- The plan only has eligible plan assets, such as mutual funds and variable annuities, that have determinable fair value.
- The plan doesn’t include employer securities.
- The plan meets independent audit waiver requirements established by the Department of Labor.
3. Form 5500Companies with 100 or more plan participants at the start of each plan year must file the traditional Form 5500. Smaller companies that don’t satisfy the requirements to simply file Forms 5500-EZ or 5500-SF must also file the traditional form. It requires companies to provide the schedules listed above.
Due Dates and Extension OptionsPlan sponsors generally must file their Form 5500 by the last day of the seventh month following the end of the plan year. For example, a plan year that ends Dec. 31 should have its Form 5500 filed by July 31 of the following year to avoid late fees and penalties. Plan sponsors can also file for an extension. Provided that the extension is filed by the deadline for the Form 5500, the plan sponsors have another two and a half months to file their form.
As part of the filing process, the plan sponsor needs to electronically sign and submit the form to the Department of Labor. You should also keep a manually signed copy of the form and all of its schedules on file.
Summary Annual ReportSponsors have additional responsibilities. Companies must create a Summary Annual Report (SAR) that summarizes the contents of Form 5500 and then distribute it to every employee participating in the plan. SARs must inform employees of their right to request a free copy of Form 5500, and the document needs to be created no later than two months following the filing deadline for Form 5500.
Is a Fidelity Bond Required for Retirement Plans?Every plan fiduciary or individual who can handle plan assets must be covered by a fidelity bond. As defined by the Department of Labor, “an ERISA fidelity bond is a type of insurance that protects the plan against losses caused by acts of fraud or dishonesty.” The amount of the bond must be either 10% of the plan’s assets at the start of the plan year or $500,000, whichever amount is less.
Important Rules for Filing Your Form 5500The Department of Labor requires online filings through the ERISA Filing Acceptance System (EFAST2). You can obtain sign-in credentials for this step at www.efast.dol.gov. Failing to file properly or with complete information can result in fines and penalties. If you need more time to fill out your Form 5500, file Form 5558 by the filing deadline to receive an extension.
Avoid Form 5500 ErrorsTo avoid common Form 5500 errors, follow these tips:
- Reread the questions and any answers that require unique codes or figures.
- Don’t note that there are zero plan participants if there are any eligible employees or employees with balances.
- File Form 5500 as long as the plan has assets, even if the plan has been terminated.
- Be on the lookout for accidental excess deferrals or contributions above the allowable amounts.
- Don’t copy answers from the previous year’s form.
- Consider working with a professional.