Fiduciary Liability and Form 5500 Reporting

Linda Fisher, who owns and operates Linda T. Fisher 5500 Consulting LLC, tells PLANSPONSOR there are a number of steps plan fiduciaries can take to ensure they are working effectively with consultants hired to run annual financial audits and mandated filing processes. It’s an important effort, she says, as sponsors and other fiduciaries are ultimately liable for such reporting and any mistakes contained therein, even in cases when the process is handed off to a specialized consultant or financial adviser.

As the name suggests, Fisher’s firm specializes in Form 5500s and strives to provide a fully outsourced filing solution to plan sponsor clients. She says it’s a fairly common business model provided by small specialist firms and the largest industry providers alike—as most companies that sponsor retirement plans require outside expertise in meeting filing and testing requirements—and one that hinges on effective communication.

“For people that are filling this out as a side part of their job with 40 different responsibilities, it’s pretty common to see errors or misunderstandings,” Fisher explains. “I’m doing this all year around and it’s still challenging to keep up with changes and the new requirements coming out from the DOL.”

To help sponsor clients keep on top of such changes, Fisher compiles a monthly newsletter on alterations to Form 5500 requirements, as well as more comprehensive reviews of related rule changes and requirements, which can be accessed for free through her firm’s website.  

When it comes to preparing for the annual audit and filing process, Fisher says one of the most powerful thing sponsors can do is make sure they’re working with a good recordkeeper who can automatically provide reporting that resembles what is required in the Form 5500 and all of its constituent schedules.

“In these cases, often I can go straight around the sponsor and talk directly to the recordkeeper and the trustees to obtain the data needed for the annual reports,” Fisher explains. “So the comments you hear about the plan sponsor needing to generate all this data to do their reporting, that’s not necessarily true if they’re getting good recordkeeping service. The data is provided for them.”

For sponsors whose recordkeepers don’t provide aggregate reporting, the reporting burden is far more significant, she explains, and more prone to mistakes.

Fisher says she often hears questions from sponsors about such things as plan codes, which are shorthand designations included in Form 5500 filings to quickly identify plans by certain characteristics, so her firm actively defines them for sponsors during the review process that is required before filings are sent to the Department of Labor (DOL) and the Internal Revenue Servcie (IRS). She encourages sponsors to remain engaged in the filing process and ask any questions that come up, both during the information gathering stages and once the final filings have been submitted to the sponsor for review.

“When we complete the filing and as we are working on it, we are constantly bouncing things off the sponsor and we’re making sure they’re doing their own reviews,” Fisher says. “As you know, before the sponsor is supposed to sign off on the filings, they are required to review it completely, and we tell them that and do our best to make sure it happens, because frankly it doesn’t always happen.”

One area for which sponsors can contribute positively to the review process is to ensure there is good documentation related to the way participant deferrals are deposited into a plan—and to make sure the deposits are timely.

“That’s a big one in the DOL’s perspective,” Fisher explains. “If it takes more than three days for the participant contributions to get into their accounts, we make sure the sponsor has an answer in place for why that is. Timeliness has become such an important question in the eyes of the DOL and serious implications can occur if contributions aren’t made in a timely fashion.”

Another area in which sponsors are often ill-prepared for filing relates to fidelity bonding when there’s a trust that is set up to hold plan assets, a common feature of many plans. Fisher says sponsors should be confirming their fidelity bonding is adequate on an annual basis and supplying the most updated information to recordkeepers and consultants engaged in the filing process.

“We have to confirm the amount of the fidelity bond every year because the requirements for coverage can change, usually every three years,” Fisher says. “There are some types of plan assets that always need to be appraised as well, when they aren’t publically traded assets. These are some critical areas and we can’t just assume that the sponsor is doing what they’re supposed to do, so we make sure we’re making the extra effort and asking the plan sponsor, rather than just trusting them to review the form and catch any issues.”

Mistakes related to outdated fidelity bonding information may seem esoteric and minor, Fisher explains, but the DOL often uses these errors as a trigger to launch a more comprehensive plan audit. And when there are small mistakes, it’s often an indication that larger problems may exist.

For sponsors assessing a service provider in the Form 5500 preparation and filing space, it’s important to engage a firm with strong technical abilities, Fisher says, but equally important is a firm’s ability to provide “excellent and responsive customer service.”

“Of course it’s important to have the knowledge, and to not be missing due dates and requirements,” she explains. “Responding to client requests the same day or the next day, not waiting a week to respond to an important question, that’s also very important in these processes. It can be as simple as the service provider going out of their way to remind sponsors of things they need to do, because the sponsors are often working on other things and can easily miss deadlines.”