Failure to correctly file Form 5500 comes with big penalties—and can trigger additional compliance challenges. The calendar year is the basis for many retirement plans, so, if your retirement plan runs on a calendar year, your form is due on July 31. Brush up on Form 5500 protocols with these pointers from experts.
Stay on Schedule—and Correct Errors Too
Lawyers at Dickinson Wright remind us:“Form 5500 is due the last day of the 7th month after the plan year’s end, although an additional two and a half month extension may be obtained by filing Form 5558 prior to the normal due date. Many plans are run based on the calendar year, so for those plans, Form 5500 is due on July 31…”
What happens if you fail to file Form 5500 on time? Ouch—you’ll be emptying your piggy bank, and then some: “The penalties for failing to file a Form 5500 can be steep. A plan sponsor that fails to file a Form 5500 is subject to a penalty of $2,400 per day imposed by the DOL with no maximum amount (adjusted for inflation), and up to $250 per day from the IRS, with a maximum of $150,000 for the IRS penalty.”
In the event you do have a filing mishap, be sure to try using the Department of Labor’s Delinquent Filer Voluntary Compliance Program (aka DFVCP). Legal experts note that by following this process, plan sponsors can file delinquent Form 5500s with reduced penalty fees “so long as the filing is made before the DOL identifies the failure to file. The IRS will also generally waive late filing penalties for Form 5500 filers who satisfy the DFVCP program.”
Current ERISA Bond?
When filing, plan sponsors must respond to Form 5500’s question about the plan’s ERISA bond coverage. Failure to respond, along with failure to actually have an up to date ERISA bond, are a major compliance issue that can trigger IRS and DOL investigations. As the experts at JD Supra remind us:
For retirement plans, ERISA imposes a requirement that every fiduciary and every person who handles plan assets be bonded to protect the plan from risk of loss due to fraud or dishonesty. This bond must cover at least 10% of the plan’s assets, up to a maximum of $500,000 per loss…Sometimes plan sponsors fail to actually maintain an appropriate bond. While there is no specific penalty for failing to maintain an appropriate bond, it creates potential exposure for plan fiduciaries to be held personally liable for losses that could have been covered by a fidelity bond.
Faced with endless responsibility lists, many plan sponsors find the ERISA bond confusing. It’s important to understand that the DOL mandates ERISA fidelity bonds to protect the assets of the retirement plan from theft. ERISA fidelity bonds can only be obtained from a surety listed by the US Department of Treasury. That’s why plan sponsors across the country trust leading national ERISA bond provider, Colonial Surety. Uniquely, Colonial includes retroactive ERISA fidelity bond coverage for years when the plan was not adequately covered. Additionally, plan sponsors can opt for cost-saving multi-year coverage, ensuring the ERISA bond remains Department of Labor compliant for the life of its term. Obtain ERISA Fidelity Bond Here Now.
It is also important for plan sponsors to understand that although an ERISA bond is required, it does not protect their personal assets in the face of fiduciary breach allegations. That’s why, in response to the rise in regulatory action and ERISA litigation, plan sponsors across the country are obtaining Colonial Surety’s affordable Fiduciary Liability Insurance. With this, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be covered for defense costs and penalty limits up to $1,000,000. Uniquely, Colonial even includes Cyber Liability Insurance, locks in multi-year rates and offers installation payments. We make it so fast and reasonable for plan sponsors to secure all this protection, that you can obtain yours in minutes now: Fiduciary and Cyber Liability Insurance Here.
Summing Up
Oversight of the annual submission of Form 5500 is a major fiduciary responsibility for plan sponsors. Essentially, as the Society for Human Resource Management (SHRM) sums up, Form 5500 is “used to report the financial conditions, investments and operations of employee benefits plans…” Retirement plan sponsors have “two masters,” the Department of Labor (DOL) and the Internal Revenue Service (IRS). While the Department of Labor oversees compliance with ERISA, the IRS polices the tax code. Both rely on Form 5500 as a means of identifying potential compliance issues. Delays and errors can trigger investigations—from both agencies. When filing Form 5500, it’s important to make sure the required ERISA fidelity bond is current and adequately covers the plan. Colonial’s complete coverage packages for plan sponsors are available online, in minutes. Our multi-year packages provide the greatest convenience and value, ensuring continuous compliance and protection. Get yours in minutes today:
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