401(k): Find and Fix – You haven’t filed a Form 5500 this year

Most 401(k) plan administrators are required to file an annual Form 5500, Annual Return/Report of Employee Benefit Plan. All Form 5500 filings must be filed electronically with the Department of Labor (“DOL”) through the DOL EFAST website.

While reviewing your plan administration to gather the information needed to file your 401(k) plan’s 2014 Form 5500 (which is generally due by July 31, 2015, unless extensions apply), you come to realize that the proper Form 5500 was not filed for your 401(k) plan for 2013.  So what do you do now to correct the problem and hopefully avoid penalties for the missed 2013 Form 5500 filing?

How to fix the mistake:

In many situations when your plan has made an error and you wish to correct it, you can use the Employee Plans Compliance Resolution System (“EPCRS”).  However, correction of a late-filed Form 5500 is NOT available under EPCRS. Instead, to correct the missed Form 5500 filing, you must file the delinquent return as soon as possible using the DOL Delinquent Filer Voluntary Correction Program (“DFVCP”) that is available to 401(k) plans.  The DOL has also posted Frequently Asked Questions which provide additional details about the DFVCP..

It is very important to identify and correct this mistake before it is noticed by the IRS or DOL.

When you discover and correct the late Form 5500 filing:

If you discover the error and file the late Form 5500 return (other than a Form 5500-EZ for a one-participant plan) using the DFVCP before the DOL notifies you of the missing Form 5500 filing, only the fees under the DFVCP program will apply. The fee under the DFVCP is generally $10 per day late (with a cap ranging from $750 to $2,000 per late filing). This is much less expensive than the penalties which could be imposed if the DOL notifies you of a late Form 5500 before you correct it under DFVCP.  If you use this DOL program, the IRS has stated that it will not pursue any late filing penalties, provide that you meet certain conditions, including a separate filing with the IRS on Form 8955-SSA to report any participants who terminated employment during the plan year with vested benefits that had not been distributed before the end of the plan year.

When the DOL notifies you of the late Form 5500 filing:

If you are notified in writing by the DOL of a failure to file a timely Form 5500 before the failure is corrected by filing under the DFVCP, the DOL penalty for late filing can run up to $1,100 per day with no maximum, and you cannot use the DFVCP to reduce the fee.

 Special Rules for Form 5500-EZ filings:

Because most Form 5500 filings are completed through the DOL website, most notifications of late filing are received from the DOL.  However, Form 5500-EZ filings (which are filed for one-participant plans with assets that exceed $250,000) are filed with the IRS using a paper form and are not eligible for DFVCP or electronic filing with the DOL (because the plans are not subject to Title I of ERISA).

When you discover and correct the late Form 5500-EZ filing:

The IRS recently released guidance that became effective June 3, 2015 and establishes a permanent penalty relief program for Form 5500-EZ filers.  This program replaces the one-year pilot program that ended on June 2, 2015.  Both relief programs allow late Form 5500-EZ filings (which are filed for one-participant plans with assets that exceed $250,000) to be made with the IRS, provided that the plan administrator had not already received a late filing notice from the IRS in which a penalty had been assessed.  The pilot program permitted the late Form 5500-EZ filings to be made without paying a penalty.  However, late Form 5500-EZ filings submitted after June 2, 2015 under the IRS permanent penalty relief program must include payment of a set penalty in the amount of $500 for each late Form 5500-EZ for each plan (with a cap of $1,500 per plan).

When the IRS notifies you of the late Form 5500-EZ filing:

If the IRS contacts you about a delinquent Form 5500-EZ filing before the failure is corrected under the IRS penalty relief program, the IRS penalty for late filing is $25 per day, up to a maximum of $15,000.  Your only option for penalty relief is to file the Form 5500-EZ in response to the IRS notice letter (as a paper filing, because Form 5500-EZ filings cannot be filed on the DOL website), together with an explanation of why you didn’t file (or didn’t timely file) the Form 5500-EZ (referred to as a “reasonable cause statement”) and a request for a waiver of the penalty. The IRS may or may not waive the penalty after considering the “reasonable cause statement.”

How to avoid the mistake:

• Understand your responsibilities to file the Form 5500 return. The plan administrator has the responsibility for ensuring that the return is filed timely. Never assume someone else is filing the return for you.
• Make an identified person or outside service provider responsible for timely filing the Form 5500 return.
• Use a calendar (tickler file) that notes the deadline for filing the Form 5500 return; and implement a communication mechanism to alert the plan administrator and any outside service providers of the upcoming deadline to file.

See 401(k): Find and Fix – You Haven’t Filed a Form 5500 This Year for more useful information and guidance for employers who sponsor 401(k) plans.

Additional resources:

401(k) Plan Fix-It Guide
401(k) Plan Overview
EPCRS Overview
401(k) Plan Fix-It Guide
401(k) Plan Checklist
Additional Resources
Correcting Plan Errors