Getting Up to Date on Form 5500

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 has a long reach—and that extends to the Form 5500. An Oct. 18 session at the 2021 ASPPA Annual conference took a look at changes that have taken place in the form vis-à-vis the enactment of the measure. 

Stephen Forbes, President of Forbes Retirement Plan Consulting, and Melissa Terito, a Partner at Sentinel Pension, highlighted changes that have taken place because of the SECURE Act and offered tips on handling them based on their experience. 

One Participant Plans. One-participant plans and foreign plans no longer use the Form 5500-SF in place of the Form 5500-EZ; a one-participant plan or a foreign plan required to file an annual return can file Form 5500-EZ electronically using the EFAST2 filing system. In addition, an amended filing for a one-participant plan or a foreign plan that previously filed electronically using Form 5500-SF must file an amended return electronically.

Required Minimum Distributions. The instructions for Line 4l have been revised to increase the required beginning date (RBD) age from 70½ to 72, as amended by the SECURE Act. This also affects Line 10f in Form 5500-SF.

Multiemployer Plans. Line 14 has been revised to provide multiemployer plans with a choice of three counting methods to count inactive participants and to require that an attachment be provided depending on the counting method chosen. A plan that reports a number on lines 14b or 14c that differs from the corresponding number it reported for the plan year immediately preceding the current plan year also must attach an explanation of the reason for the difference.

Delinquent Filing Penalties. There are changes to the penalties that the IRS and the Department of Labor (DOL) impose for delinquent filing: 

• IRS: There is a late filing penalty of $25 per day, up to maximum of $15,000. For returns required to be filed after Dec. 31, 2019, the penalty for failure to file is increased to $250 a day, up to $150,000. If the IRS contacts you about its delinquent Form 5500, you may file the return in response to the letter, Forbes noted. You should include an explanation of why you did not file the return and request a waiver of the penalty. And IRS penalties can be waived, he added, by correcting errors through the DOL’s delinquent filer voluntary compliance program (DFVCP).
• DOL: The penalty for late filing can run up to $2,529 per day, with no maximum.

Forbes cautioned that, “what may satisfy one agency may not satisfy the other one.” Terito had words of warning as well. “At the end of the day,” she said, “it is very costly to not file the 5500.” 

Plan Audits. The Auditing Standards Board has issued a new auditing standard to improve the accountant’s opinion, Forbes and Terito noted. They said that the Statement on Auditing Standards (SAS) 136 applies to audits of single employer, multiple employer, and multiemployer plans subject to ERISA, and permits the auditor to issue a form of an unmodified opinion when the auditor has performed an audit pursuant to DOL Regs. §2520.103-8 or §2520.103-12. These changes are effective for plan years ending on or after Dec. 15, 2021. 

Audit Triggers. Forbes had a pointed warning regarding audit triggers, telling attendees, “The DOL has gone after people who fib on their 5500.” He and Terito noted that there are many audit triggers: 

• failure to answer a required question;
• large drop in the number of participants;
• inconsistencies in the data disclosed on the Form 5500 schedules;
• auditor’s opinion on the Schedule H;
• reporting of late deposits on deferrals;
• no fidelity bond;
• a large dollar amount in the “other” asset line on schedule H;
• commissions being received by a PEO-owned or Associationowned insurance agency on Schedule A;
• Schedule C service providers list who are not outside entities;
• an affirmative answer to the questions regarding a transaction with a party-in-interest; and
• a plan being unable to pay benefits that are due.

Plan Sponsor Responsibilities. Forbes and Terito outlined changes to plan sponsor responsibilities. These include:
Under SAS 136, as a precondition for an audit, the plan sponsor must understand and acknowledge, in writing, its responsibility for maintaining a current plan document and amendments.

Plan sponsors must also acknowledge, in writing, that they have maintained sufficient participant records in order to determine benefits currently due or that will become due to participants. 

Before dating the audit report, ERISA plan auditors must review a draft of a substantially completed Form 5500. This is done so the auditor can identify any material inconsistencies or misstatements between the financial statements and the Form 5500 before the audit report date. 

Retroactive Plan Adoption. “Retroactive plan adoption makes a lot of sense,” said Terito of one of the changes put in place by the enactment of the SECURE Act. 
Under the SECURE Act, an employer my adopt a retirement plan after the close of the employer’s taxable year (by the due date, including extensions, for filing its tax return for the taxable year) and elect to treat the plan as having been adopted as of the last day of the taxable year. This applies to plans adopted for taxable years beginning after Dec. 31, 2019. 

If an employer adopts a 2020 plan after the end of the tax year but by the due date, including extensions, for filing the employer’s 2020 tax return, and elects to treat the plan as having been adopted as of the last day of the employer’s 2020 taxable year, it will not be required to file a Form 5500 with respect to the plan for the plan year that begins during the employer’s 2020 taxable year.

The employer will be required to check a box on the 2021 Form 5500 indicating that it elects to treat the plan as retroactively adopted as of the last day of its 2020 taxable year.

If the plan is a defined benefit plan, the employer will be required to attach a 2020 Schedule SB to the 2021 Form 5500 or Form 5500-SF, in addition to a 2021 Schedule SB.

But Wait—There’s More

Forbes noted that further changes to the Form 5500 have been proposed recently. He said that one of the more significant proposed changes is that for purposes of determining if a plan is large or small, participants with no account balances would be disregarded and not considered to be participants. “That’s huge,” said Forbes. He noted that some additional schedules also have been proposed. Forbes stressed that these and other proposed changes are exactly that—proposals—and that “some may happen, and some may not.”