Most retirement plan sponsors are aware of the annual retirement plan Form 5500 reporting requirement. What comes as news to many is a company’s welfare benefit plan may also be subject to Form 5500 filing requirements. Welfare benefit plans provide benefits such as medical, dental, vision, life insurance, long-term and short-term disability, accidental death and dismemberment, and severance pay.
Failure to file a Form 5500 may result in substantial fines imposed by the Department of Labor
(DOL) as well as the Internal Revenue Service (IRS).
General Form 5500 filing requirements
Under the Employee Retirement Income Security Act (ERISA), a Form 5500 is required on behalf of any welfare benefit plan, which 1) is funded through a trust, or 2) has 100 or more participants as of the beginning of the plan year. However, governmental and church plans are exempt from the filing requirements.
How do you count participants for a welfare 5500?
A welfare benefit plan participant generally includes 1) a current employee who is covered by the welfare benefit plan (i.e., enrolled in benefits), 2) a former employee who is covered by the welfare benefit plan (i.e. those receiving COBRA, retiree medical, etc.), and 3) a former employee who is eligible to elect coverage under COBRA, but has yet to elect benefits. However, spouses and dependents are not counted for this purpose. Unlike a retirement plan, an active welfare benefit plan participant is an employee who is enrolled in one or more of the benefits covered by the welfare benefit plan. An active employee who is eligible to participate in a welfare benefit plan but chooses not to enroll in benefits is not a participant for Form 5500 purposes.
How many welfare plans does an employer have?
A plan sponsor should determine whether it sponsors one or more welfare benefit plans for Form 5500 reporting purposes. A plan sponsor must review the governing documents and actual operations to determine 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.
So, what should you do if you realize that you have inadvertently failed to file a Form 5500 for your welfare plan(s)?
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 in excess of $2,000 per day (as indexed, with no limit) and IRS penalties of $25 per day (limited to $15,000 per return). The DOL has been increasing 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, which reports more than 100 participants in the plan.
What penalty relief is available?
Late Forms 5500 generally may be filed under the DOL’s Delinquent Filer Voluntary Compliance (DFVC) Program, which provides reduced penalties if late returns are filed prior to written notification by the DOL of a failure to file timely.
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.
Filing under the DFVC Program is strongly advised.
If you have questions about whether you are 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 at Laura.Taylor@plantemoran.com or 616.643.4025.