(b)lines Ask the Experts – Avoiding Form 5500 Errors

“What should I be doing in terms of reviewing the form prior to execution?” 

Michael A. Webb, Vice President, Retirement Plan Services, Cammack LaRhette Consulting, answers:

Excellent question! Though the Experts might be stating the obvious, one thing you should most certainly do prior to filing is READ THE ENTIRE FORM. The Experts cannot tell you how many 5500 defects required significant corrective action simply due to the fact that a basic mistake was unnoticed for several years due to the lack of review.

Though it may be time-consuming, reading each and every page with a critical eye, and questioning everything that you do not understand, often leads to the uncovering of errors that may result in substantial monetary consequences down the road if not caught prior to filing. Specific problem areas that the Experts have noticed on multiple occasions include, but are not limited to, the following “dirty dozen”:

1. Incorrect form filed: filing the Short Form, or SF, when the plan has more than 100 participants.

2. Incorrect plan number: this occurs often when the employer maintains multiple plans.

3. Plan number on main 5500 form does not match plan number listed on Schedules.

4. Incorrect Employer Identification  Number (EIN), the employer’s tax id. The Experts have seen the preparer utilize the EIN of an incorrect affiliate of the employer, or even the EIN of another employer entirely!

5. Number of participants at the end of the plan year listed in the previous year’s filing is inconsistent with the number of participants at the beginning of the plan year listed in the current year’s filing. Often, these figures should match. It is possible that they do not match (e.g. if some employees become newly eligible on the first day of a plan year), but you should be able to explain why if the Department of Labor ever inquires, which they have been known to do.

6. Not including participants in your total and active participant counts who are eligible to make elective deferrals to your 403(b) plan, but choose not do so. For many 403(b) plans, this is all active employees, regardless of whether they receive employer contributions.

7. The check boxes on the front page listing the schedules are not consistent with the actual schedules filed. The most common error is failing to indicate the number of schedule A’s filed as is required.

8. Not filing all of the proper schedules. For example, a Schedule A for each vendor who provides a an insurance product (in 403(b), a 403(b)(1) fixed or variable annuity contract) should be filed, even if the vendor no longer accepts contributions (Note: vendors where contributions ceased prior to 1/1/09 are exempt from being disclosed in the 5500 filing under certain circumstances). Schedules C, H and R are also required to be filed with the vast majority of large 403(b) plans, and plans with some vendors are required to file Schedule D as well.

9. Math errors—again, this should go without saying, but every column should add up! However, the Experts have seen many mistakes in this area, especially with regard to participant counts (partially due to the layout of the form, which can be confusing).

10. Financial information listed in Schedule H not matching the information listed in the audit report.

11. The audit report not properly describing the plan provisions that are accurate and current to the year in question. Remember, this would be the year PRIOR to the present year. If provisions have changed since the filing year, the changes should be listed as a subsequent event (there is a special section of the report that addresses subsequent events).

12. The audit report listing frozen vendors as active.

In addition, the Department of Labor offers a troubleshooting guide for 5500 filings at http://www.dol.gov/ebsa/pdf/troubleshootersguide.pdf. It is somewhat dated (from 2010) but it is also helpful in conjunction with your review to spot errors.

Good luck with your filing!