Most employers know they need to file annual Forms 5500 for their retirement plans, but did you know that benefits like medical, dental, and disability may require separate filings? Here’s what you need to know.
What are the general Form 5500 filing requirements?
Under ERISA, a Form 5500 is required on behalf of any welfare benefit plan that:
- Has 100 or more participants as of the beginning of the plan year.
- Is funded through a trust, regardless of participant count.
The rules do provide an exemption from the filing requirements for governmental and church plans.
Who counts as a participant for purposes of a welfare plan Form 5500?
A person is considered a “welfare benefit plan participant” for purposes of the Form 5500 if they are:
- A current employee who’s covered by the welfare benefit plan (i.e., enrolled in benefits).
- A former employee who’s covered by the welfare benefit plan (i.e. those receiving COBRA, retiree medical, etc.).
- A former employee who’s eligible to elect coverage under COBRA, but has yet to elect benefits.
Spouses and dependents are not counted for this purpose.
Unlike a retirement plan, an employee must be enrolled in one or more of the benefits covered by the welfare benefit plan to be considered an active welfare benefit plan participant. An active employee who’s eligible to participate in a welfare benefit plan but chooses not to enroll in benefits isn’t a participant for Form 5500 purposes.
How many welfare plans does an employer have?
An employer needs to understand how many welfare benefit plans it sponsors for Form 5500 reporting purposes. To make this determination, the plan sponsor must review the governing documents and actual operations to see if the welfare benefits are provided as a single welfare benefit plan or separate welfare benefit plans. If more than one plan exists, a plan sponsor should consider adopting a welfare wrap plan document to consolidate the benefits into a single welfare benefit plan, resulting in one Form 5500 filing.
What should you do if you realize that you have inadvertently failed to file a Form 5500 for your welfare plan(s)?
If you determine that you have welfare plans that have a filing requirement, it’s important to file a Form 5500 for every year and for every welfare benefit plan required as soon as possible to minimize penalties. Penalty exposure for late Forms 5500 includes DOL penalties of $2,233 per day (as indexed, with no limit) and IRS penalties of $25 per day (limited to $15,000 per return).
The DOL has increased their attention on welfare benefit plans where Forms 5500 may not have been filed. This is especially true where an employer files an annual retirement plan Form 5500 that reports more than 100 participants in the plan.
What penalty relief is available?
Plan sponsors who find out that they have failed to file all of the necessary Forms 5500 generally may file their missing Forms under the DOL’s Delinquent Filer Voluntary Compliance (DFVC) program. The DFVC program allows for reduced penalties if late returns are filed before an employer receives written notification from the DOL of a failure to file the Forms.
Filing under the DFVC program is strongly advised. The reduced penalty is $10 per day per return, not to exceed $750 ($1,500 for multiple plan years) for plans with fewer than 100 participants or $2,000 ($4,000 for multiple plan years) for plans with 100 or more participants. In some cases, the penalties avoided by voluntary compliance could make the difference between life and death for the business.
Filing under the DFVC program is strongly advised.
If you have questions about whether you’re required to file a Form 5500 for your welfare plan, or if you would like assistance filing a Form 5500 or making a submission through the DOL’s DFVC program, please contact Laura Taylor or Nichole Bechard.