Form 5500 Basics: What Sponsors Need to Know

The Internal Revenue Service (IRS) requires that retirement plan sponsors file a Form 5500 by the end of the seventh month following the close of the previous plan year, says Amy Ouellette, director of retirement services at Betterment for Business in New York. Thus, if a plan is operating on a calendar year, the form would be due on July 31, she notes.

However, plans also have the option of extending the deadline by 2 1/2 months to October 15, which Ouellette says can be a good idea in order to have extra time to review the document. Sponsors can obtain this extension by filing a Form 5558 Application for Extension of Time to File, notes Darin McWilliams, director of plan reporting services at Principal in Des Moines, Iowa.

Very small plans with limited reporting requirements can file Form 5500-Easy, Ouellette says. For companies with fewer than 100 employees, 5500-SF (for short form) is available, she says. For those with 100 or more employees, the IRS requires a standard Form 5500 with multiple schedules and a plan audit, she says.

The purpose of Form 5500 is to obtain “information regarding plan design specifications and basic plan sponsor information such as employer identification number, address, phone number, etc.,” says Alice Palmer, chief counsel, retirement plan services at Lincoln Financial Group in Radnor, Pennsylvania. “The main portion of the form reports the overall financial assets in the plan at the start of the year and breaks down the allocation by investment type (i.e. mutual funds, pooled separate accounts, guarantee accounts, etc.), the movement of the assets throughout the plan year (contributions, earnings, distributions, etc.) and the assets as of the end of the plan year.”

For large plans with more than 100 participants, adds Tom Foster, national spokesperson for workplace solutions at MassMutual in Enfield, Connecticut, “the 5500 reports financial information at the fund level, as well as participant count information, fidelity bond information and late contributions.”

Large plans also have to “submit additional schedules that are specific to identifying service providers such as registered representatives, third-party administrators, independent auditors, recordkeepers and fund providers and the fees paid to each of these service providers,” adds Troy Dryer, vice president at FPS Group in Denver, Colorado. Plus, large plans need to have an independent audit conducted, he says.

As to who typically fills out Form 5500, while the plan administrator is responsible for signing and filing Form 5500, Dryer continues, “usually, the plan administrator turns to their recordkeeper or hires a TPA to complete the information. However, a growing trend is for employers to hire a retirement professional as a 3(16) named fiduciary to sign the annual 5500 and approve plan transactions.”

According to the IRS’s website, the IRS penalty for late filing of a 5500-series return is $25 per day, up to a maximum of $15,000. The Department of Labor (DOL) penalty for late filing can run up to $1,100 per day, with no maximum. In addition, retirement plan officials can face prison time for making a false statement, Ouellette adds.

For defined benefit plans, the IRS can charge a penalty of $1,000 for each failure in the actuarial statement, i.e. Schedule MB and Schedule SB, Palmer says.

To avoid such mistakes and to ensure the Form 5500 is clear of all errors prior to submitting, says George Smith, product support manager with Wolters Kluwer Legal & Regulatory U.S. in Garner, Iowa, the plan sponsor/plan administrator might ask their TPA to review the form with them.

“This is a great way to ensure the information is complete and accurate,” he says.