Form 5500 Filing Tips

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1/14/2004
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Form 5500 filing season is upon us once again. Recently, the DOL released a list of Form 5500 filing tips. The tips focus on some of the more common filing errors. The following summary identifies the filing errors and provides an explanation of how to avoid such errors:

  • Fringe Benefit Plans. Employers no longer need to file a Form 5500 and the Schedule F for a “pure” fringe benefit plan (e.g., cafeteria plan). According to the DOL, a substantial number of employers continue to be unaware of the suspension of the filing requirement for fringe benefit plans. The suspension also applies to late Form 5500s for fringe benefit plans.

    A pure fringe benefit plan is a fringe benefit plan that does not include any welfare benefit plan that needs to file a Form 5500. For example, if an employer maintains a cafeteria plan with a small, fully-insured health insurance plan and a small, unfunded medical reimbursement plan, the cafeteria plan does not file because of the suspension, and the two welfare plans do not file because of the small welfare plan exemption for fully-insured and unfunded plans. On the other hand, if the two welfare plans were large plans, the employer would need to file a Form 5500 for each of the two welfare plans, even though it would not file a Form 5500 for the cafeteria plan. Of course, if the cafeteria plan incorporated the two large welfare plans into its document (“umbrella plan”), the employer could file a single Form 5500 for the welfare plans, but the form only would report the welfare plan information and not the cafeteria plan information.

  • Failure to Sign and Date the Form 5500. The most common reason employers receive correspondence from the DOL is their failure to sign and date the Form 5500. The preparer also should make certain any schedule (B, P and SSA) that requires a signature is signed by the proper person.

  • Proper EIN and Plan Number. The IRS and DOL track plans by the employer’s EIN and the plan number. Accordingly, the preparer must use the correct numbers each year. If the preparer uses incorrect numbers, the improper numbers will disrupt the processing of the form, and it will require hours of additional time in corresponding with the DOL. If the employer’s EIN changes, the preparer must indicate the change on line 4. The preparer also should be careful not to reuse numbers of terminated plans. For multiple employer plans, the preparer must select the EIN from one of the employers and use that number for each filing.

  • 12-Month Period. The plan year for which the preparer files a Form 5500 can never be more than 12 months. If the plan year is a non-calendar year, the preparer identifies the period on the Form 5500. The preparer also should make certain there is no gap between the ending date of the previous filing and the beginning date of the filing for the next period. For a short year, the preparer must identify the period on the Form 5500 and check box B(4). Furthermore, the beginning and ending dates for a short plan year need to be reflected on each schedule attached to the Form 5500.

  • Final Form 5500. An employer cannot file a final Form 5500 for a plan year if the plan continues to have assets, liabilities, or participants as of the end of the plan year, even if the employer has adopted a resolution to terminate the plan. Furthermore, if the employer is merging the plan with another plan, it cannot file a final Form 5500 until it has transferred all of the plan assets to the legal control of the recipient’s plan trust.

    A welfare plan that has become a small fully-insured or unfunded plan should not check box B(3) for a final return, but should enter code 4R on line 8b to inform the DOL that it will not need to file in the next year.

  • Business Code. A preparer must enter a valid business code that describes the nature of the employer’s business. The only valid codes are those listed in the Form 5500 instructions. If the nature of an employer’s business changes, the preparer may change the business code.

  • Plan Characteristics. For line 8, the preparer must use the correct characteristic codes. In particular, the preparer should not use defined benefit codes for defined contribution plans or vice versa.

  • Funding and Benefit Arrangements. The preparer must properly indicate the funding and benefit arrangements on line 9. The funding arrangement is the method the plan uses for holding, receiving, and transmittal of benefits. The benefit arrangement is the method the plan uses to provide benefits to participants. The preparer should idnidcate all funding and benefit arrangements, because the DOL cross-references the responses with the schedules. For example, if the preparer indicates a trust, the DOL will expect a schedule H or I. Likewise, if the preparer indicates insurance, the DOL will expect a Schedule A.

  • Schedules. The preparer should include all of the required schedules and attachments to the Form 5500. The preparer determines the schedules by the type of plan, the number of participants, and the plan investments. The preparer should make certain the schedules identified on Line 10 match the schedules actually included with the filing.

  • Financial Information. Preparers need to complete the financial information forms properly (Schedules H or I). The following questions generate the most filing errors:

      (a) Failure to include the audit (Schedule H)
      (b) Failure to respond to all of the questions on line 4
      (c) Failure to complete the “total” lines
      (d) Using the purchase price of an asset instead of the year-end value
      (e) If the plan borrows money, the loan should be listed as a liability and not as an asset.

  • Filing Loose Schedules. A preparer may not file a missing schedule by itself. The preparer will need to amend the return and include the missing schedule.

  • Proper Software or Handprint Forms. The preparer must use approved software or it must use official handprint forms.

  • Amended Form 5500s. If the preparer amends a Form 5500, the preparer submits a Form 5500 with Box B(2) checked and includes only schedules or attachments that are being amended. If the preparer is not making any change to a schedule, it should not include that schedule with the amended filing. For an electronic filing, the preparer will resubmit the Form 5500 and all of the schedules and attachments, regardless of whether the preparer is making any changes to the schedule or attachment.

Our Form 5500 Workshop will provide a thorough, line-by-line explanation of the Form 5500 and schedules. The workshop also will cover the small plan audit rules, late filing procedures (including how to eliminate IRS penalties) and filing alternatives. More information on seminar locations, program agenda, and registration is available here .

For preparers looking for a reference guide that will assist them in completing the Form 5500 (and schedules) and answer the tough questions, Relius Government Forms offers The 5500 Filing Guide. In addition to providing a line-by-line explanation of the forms, the Guide includes hundreds of examples and frequently asked questions. The Guide also includes completed sample forms. More information on the Guide is available here.