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Check that 5500 Before Adding Your John Hancock

Practice Management

Preparing and fling the Form 5500 Series is one of the more onerous tasks associated with administering retirement plans. But one should resist the impulse to just sign the thing and get it all over with, argues a recent blog entry.

In “The IRS Form 5500 – Look Before you Sign!” an entry in Alliant Wealth Advisors’ blog, Laurie C. Wieder, Vice President, Alliant Wealth Advisors, Qualified Plans Division, warns that one should take a deep breath before filing and make sure that no mistakes have been made. “Don’t be tempted by your nearness to the ‘finish line,’ she writes. “Look carefully before you sign,” suggests Wieder, warning, “inaccuracies on a Form 5500 could trigger a knock on your door from the IRS or the U.S. Department of Labor with a request to review your organization’s 401(k) plan!”

Wieder suggests eight steps to help ensure that the Form 5500 filed is accurate and complete:

  1. Review the Form 5500 as though it is the first time you see it.
  2. Confirm that there is fidelity/ERISA bond coverage and report on the form that the plan has such coverage. 
  3. Understand that the plan’s fidelity/ERISA bond must be 10% of plan assets as of the beginning of the plan year for which the Form 5500 is filed or $500, whichever is less, and that if company stock is offered in a 401(k) plan, the maximum bond required doubles to $1,000.
  4. Ensure that the form distinguishes and tallies participants who are active, have balances and are terminated.
  5. Make sure that all the plan characteristic codes reported on the form accurately describe plan operations. 
  6. Make sure that deferrals complied with the annual contribution limits and that the coding of all contributions corresponds to the type of plan in which they are made.
  7. Make sure all schedules and attachments correctly refer to the plan’s name, employer identification number (EIN) and plan number.
  8. Remember to file a Form 5500 for even a plan that was terminated.

Wieder stresses the importance of accuracy by noting that an error on a Form 5500 may invite scrutiny from the IRS and Department of Labor (DOL) beyond that particular mistake. “The IRS and DOL believe that if there is even a small error on the Form 5500, it can be an indication that other errors and compliance problems may be present and thus warrant a closer review,” she writes, warning that “Once an audit has begun, the scope of the initial inquiry can be broadened.” And, Wieder adds, “Any detected compliance errors can result in costly fines.”