Who is Required to File a Form 5500?

The Employee Retirement Income Security Act of 1974 (ERISA) reporting and disclosure requirements, requires administrators and plan sponsors of pension and welfare plans to file an annual return, Form 5500, with the Department of Labor’s Employee Benefits Security Administration (EBSA) which contains information about a plan’s financial conditions, investments and operations.  ERISA Section 3(3) defines the term employee benefit plan (or plan) as an employee welfare benefit plan, an employee pension benefit plan, or a plan that is both an employee welfare benefit plan and an employee pension benefit plan.

Who is Required to File?

Every pension and group welfare benefit plan that is subject to ERISA is required to file a Form 5500, with the following exceptions:

  • A Welfare Benefit Plan that covered fewer than 100 participants as of the beginning of the plan year and is unfunded, fully insured, or a combination of insured and unfunded;
  • An Unfunded Excess Benefit Plan is a plan maintained by an employer solely for the purpose of providing benefits in excess of the limitation on contributions and benefits imposed by Code Section 415
  • A Tax-Sheltered Annuity Arrangement or Custodial Accounts
  • A Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)
  • A Simplified Employee Pension (SEP) or a salary reduction SEP (SARSEP)
  • A Church Plans not electing ERISA Coverage
  • Certain Pension Benefit Plans Maintained Outside the United States
  • Unfunded Pension Plans Benefiting a Select Group (Top-Hat Plans)
  • Unfunded Dues Financed Pension Benefit Plans Maintained by Unions
  • An Individual Retirement Account or Annuity (IRA) not Considered a Pension Plan
  • A Governmental Plan
  • A “One-Participant Plan”

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So…Your Plan Finally Got an Audit Notice from the DOL..What Now?

Through the Department of Labor’s (DOL)  Employee Benefits Security Administration (EBSA), DOL investigations are on the rise, conducting thousands of audits per year and the DOL is planning on hiring more enforcement officers.  The EBSA’s oversight authority extends to not only retirement plans but also to other welfare benefit plans, such as those providing life or disability insurance.  They are responsible for ensuring the integrity of the private employee benefit plan system in the United States.

In FY 2013, the EBSA closed 3,677 civil investigations with 2,677 (72.8%) resulting in monetary results for plans or other corrective action, exhibiting its ability to effectively target ERISA violators in the employee benefit plan universe and closed 320 criminal investigations. EBSA’s criminal investigations, as well as its participation in criminal investigations with other law enforcement agencies, led to the indictment of 88 individuals – including plan officials, corporate officers, and service providers – for offenses related to employee benefit plans.  More statistical information on EBSA investigations can be found on the DOL’s website. Fact Sheet.

With nearly three out of every four plans audited by the DOL having Employee Retirement Income Security Act of 1974 (ERISA) violations, industry professionals speculate they are preparing for another increase in benefit plan audits for both Retirement Plans and Health & Welfare Plans.

You Received an Audit Notice…Now What?

Simply put, don’t ignore it!!!  As previously mentioned, the DOL has the authority to seek both civil and criminal penalties and ignoring them is not going to make them go away.  Failure to provide requested plan documents can result in a penalty of up to $110 per day up to $1,100 per request.

The notices generally include a lengthy list of documents it wants to review as well as a required response date, usually ten days from the receipt of the letter.  It will also indicate when the audit is scheduled as well as the contact information for the examiner.  If you have a scheduling conflict or need more time to gather all of the information requested, don’t hesitate to ask for more time.  The auditors are generally pretty reasonable  and if given ample time are willing to reschedule.

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What 5500 Information Can Trigger a DOL Audit?

The ability to efficiently review the Form 5500, related schedules and IQPA (Independent Qualified Plan Auditor’s) Report has increased dramatically since the introduction of electronic filing in 2009 and EFAST2.  With this increase in efficiency, the IRS and DOL have been more aggressive in using this information to identify plans for audits and investigations.  In 2012 alone, the DOL contacted thousands of plan sponsors requesting amendments or further explanations of previously reported information on the form or schedules.  With improved techniques and technology, the IRS and DOL can performed more targeted audits.

First, it is important to understand what authority and responsibility each agency has jurisdiction over:

  • The IRS has primary jurisdiction over the qualified status of ERISA governed plans, with includes examining plans and processing requests for determination letters.
  • The DOL has primary jurisdiction over the fiduciary standards, reporting and disclosure requirements and other rules that do not affect the qualified status of the plan.

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