Form 5500: Why Me?

A June 2 ASPPA webinar emphasized the importance of the Form 5500 as a trigger for investigation, and how to avoid one. 

In “Form 5500: Update, Troubleshooting and Audit Triggers,” Stephen W. Forbes, J.D., LL.M. of Forbes Retirement Plan Consulting emphasized how important it is not only to report accurately on the Form 5500, but also to have an audit conducted before the form is submitted. 

“You need to be very careful in filling out the Form 5500,” said Forbes, adding that the Form 5500 is “the window the IRS, Department of Labor (DOL) and Pension Benefit Guaranty Corporation use to determine compliance.” Delinquent Forms 5500 “will continue to be an issue and a concern,” he said.

“If your client is wondering why it is being audited or investigated by the IRS or DOL, they probably need look no further than the Form 5500,” Forbes continued. And it doesn’t take long—he observed that within a few months of filing the form, the Department of Labor (DOL) often sends thousands of letters and emails to plan sponsors requesting amendments or explanations of responses on the form or schedules.

Required Audits

Forbes said that in some cases, the DOL rejects filings because a Form 5500 that was submitted did not include a required audit. “You need to move heaven and earth to get the audit completed,” he said. 

But an audit also must be completed well. Forbes observed that the DOL has been concerned about the quality of ERISA plan audits, and that it completed an audit quality study in 2015. During that study, the DOL reviewed workpapers for 400 audits and estimated that nearly 40% of ERISA plan audits had major deficiencies that could put millions of employees at risk. 

Filed Forms 5500 also can be rejected if an audit was improperly attached. 

DOL Scrutiny

There are other triggers for DOL attention, Forbes noted. For instance, prohibited transactions are “high on the IRS list.” Also, Forbes said, when there are deemed distributions, if no Form 1099 is filed, “that’s going to be an issue.” And when filing a Form 5558—which can be used to request an extension for Form 5500—Forbes warned, “Make certain that the name of the plan sponsor matches,” adding that the employer identification number (EIN) is not enough.

Timeliness matters, too, Forbes indicated—in making payments that are reported, as well as in addressing problems that are identified. Frequent late deposits will result in an investigation, he said, remarking, “They consider themselves to be on a par with God and angels on this one.” And when there are problems, Forbes cautioned, “React to these things quickly. Don’t sit on them for too long.”

Changes to the Form 

Forbes said that the changes to the Form 5500 for 2020 reporting are not significant. But there may be more to come, he suggested. “It remains to be seen” if the new administration will look at potential changes to the Form 5500 that the Trump administration shelved, he said.  

Forbes also discussed changes that the SECURE Act made that affect the Form 5500. For instance, the attachment concerning multiple employer plans (MEPs). Now the Form 5500 for MEPs, as well as pooled employer plans (PEPs) must provide: 

• a list of participating employers;
• a good-faith estimate of the percentage of the contributions that each employer made during year; and 
• identifying information for the paycheck protection program, in the case of a PEP.

“The DOL is getting serious” about reporting regarding MEPs, he said, adding that it’s “not just some of the EIN. They want the whole name.”

And looking ahead, in 2022, it will be possible for employers to form a group of plans (GOP). A GOP is neither a MEP nor a PEP; it’s a group of unrelated employers that can file a combined Form 5500 if they have the same: 

• trustee;
• plan administrator;
• plan year, and;
• investments or investment options. 

“Some plan sponsors think this could become popular,” Forbes said.

Available on Demand

The ASPPA Webcast “Form 5500: Update, Troubleshooting and Audit Triggers” is available on demand; click here.