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Form 5500 and How to Avoid Three Common Mistakes

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For businesses with retirement plans it is crucial to understand Form 5500. The form reports on a significant amount of information about the plan. Form 5500 details the financial, actuarial, and other information is required on an annual basis, form 5500 return, to the Department of Labor (DOL) and Internal Revenue Service (IRS). The administrators of large and small pension plans may have different reporting requirements for the annual form 5500 return, for large and small welfare benefit plans, and direct filing entities (DFEs). These differences can lead to omissions and errors in the annual return. According to the IRS, entering incorrect information, or accidentally leaving a field blank when filling out Form 5500, may result in an employee plan compliance check by the DOL.

If you prepare this form for your business, be on the lookout for these common mistakes:

Is your business required to file an annual form 5500 return?

A growing business having 100 or more employees may unknowingly have a form 5500 filing requirement they didn’t have in previous years. Generally, a form 5500 must be filed for health and welfare plans with 100 or more participants on the first day of the plan year. Such plans may include health, dental, vision, life insurance, short-term and long-term disability and health Family Savings Account plans. Failing to file a form 5500 return can be costly, the IRS late filing penalty is currently $250 per day with a maximum of $150,000.

Does your ERISA plan have fidelity/ERISA bond coverage?

A frequent error is to answer this question on the form 5500 is NO, even when a plan is protected. Does the plan’s fidelity/ERISA bond meet the coverage requirements? The coverage must be 10% of plan assets as of the beginning of the plan year for which the form 5500 is filed or $500,000, whichever is less. If there is company stock offered in the 401(k) plan, then the maximum bond required increases from $500,000 to $1 million.

Does the form 5500 return correctly report participants?

A retirement plan distinguishes and tallies participants who are active, have balances, and are terminated. Many plan sponsors are unaware that the IRS defines an active participant for a retirement plan as any participant who was eligible to contribute during the plan year, regardless if they did so or not. By comparison an employee benefit plan only counts employees who are actually enrolled for coverage under the plan. Having an accurate participant count is important in determining which forms are required to be filed.

At Maner Costerisan, we understand the complex challenges plan administrators face and are committed to providing quality EBP services. We help our clients prepare the Form 5500 return to avoid these errors and potentially costly mistakes, while offering the advisory tools necessary to stay complaint. We know employee benefit plans and we can help.

Dave Henson, Business Development Manager - Maner Costerisan

Dave Henson

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