Every retirement plan governed by the Employee Retirement Income Security Act (ERISA) needs to file a Form 5500 with the Internal Revenue Service (IRS), says Richard Rausser, senior vice president of client services at Pentegra Retirement Services. Although plans need to file only one document, the IRS shares these forms with the Department of Labor (DOL), he says.
The form is due seven months after the end of the plan year. Thus, if a plan’s calendar year ends on December 31, the 5500 is due July 31, says Jim Vanburen, a director in the human capital services practice at Grant Thornton LLP. Should a plan need additional time to complete the form, it can file a Form 5558 for a 2 1/2-month extension, as long as that form is filed before the original Form 5500 deadline, he says.
It is important for plan sponsors to realize that the purpose of these forms is merely to gather basic information about a plan, as opposed to serving as a tax return, notes Adam Bergman, a senior tax attorney with IRA Financial Group. That is undoubtedly why the IRS audited only 8,706—or less than 1%—of the 908,000 Form 5500s that it processed in 2014, he says.
A plan’s recordkeeper or third-party administrator (TPA) typically fills out the forms, notes Mark Klein, CEO of recordkeeper PCS. However, “the form is signed by the plan administrator under penalty of perjury, so sponsors and their advisers can and should verify the accuracy of the form before it is filed,” Klein says.
“The Form 5500 is the primary source of information about the operations, funding and investments of private-sector, employment-based pension and welfare benefit plans in the U.S.,” says Rausser. “The information is reported on various schedules attached to the Form 5500. In addition, if the plan covers 100 or more participants at the beginning of the plan year, the plan administrator must attach an audited financial report on the plan assets.”
Not only is “the Form 5500 Series an important research and compliance tool for the DOL, it can serve as a disclosure document for plan participants and beneficiaries, and a source of information and data for other federal agencies, Congress and the private sector in assessing employee benefit, tax and economic trends and policies,” Rausser says.
According to Michael Savage, retirement services compliance manager for Paychex, “DOL and IRS auditors conduct data-mining searches to evaluate the overall health of the nation’s private-sector retirement plans. Because employers are permitted to deduct the majority of their plan’s contributions, the IRS utilizes Form 5500 data to substantiate this tax-qualification claim and proof of the plan’s compliance. The DOL also uses Form 5500 data to identify which areas of the country have employers offering retirement plans and their participation rates, and ERISA [Employee Retirement Income Security Act] investigative units [for both the IRS and DOL] analyze Form 5500 data to identify trending plan errors in order to improve their future plan guidance.”
Last July 21, the DOL, IRS and Pension Benefit Guaranty Corporation (PBGC) proposed changes to Form 5500, effective for 2019 forms that would be filed in 2020, Vanburen says. “The bottom line,” he concludes, “is that, as complex as these forms are currently, they will become even more complex in the coming years.”