To meet ERISA reporting requirements, most 401(k) plans must file a Form 5500 annually. This form is designed to disclose certain plan-related information to the Federal government and plan participants. There are three versions of the Form 5500, each with different filing requirements. In general, the largest 401(k) plans have the most detailed - and costly – filing requirements.
While a 401(k) provider generally prepares the Form 5500, employers should still understand the filing requirements for their 401(k) plan - otherwise, substantial penalties and avoidable plan expenses are made more likely. This knowledge can also help employers monitor their 401(k) provider – an important fiduciary responsibility – to confirm they’re preparing the Form 5500 timely and competently.
The government’s Form 5500 series includes 3 versions. Generally, the Form 5500 version a 401(k) plan must file for a year is based on its participant count. A description of each version - and when it must be used – is below. For more information, see the DOL’s Reporting and Disclosure Guide for Employee Benefit Plans.
|
Item |
Large 401(k) Plan |
Small 401(k) Plan |
|
Schedule A |
Must complete if plan has insurance contracts. |
Must complete if plan has insurance contracts. |
|
Schedule C |
Must complete Part I if service provider was paid $5,000 or more, Part II if a service provider failed to provide information necessary for the completion of Part I, and Part III if an accountant or actuary was terminated. |
Not required. |
|
Schedule D |
Must complete Part I if plan participated in a CCT, PSA, MTIA, or 103-12 IE. |
Must complete Part I if plan participated in a CCT, PSA, MTIA, or 103-12 IE.4 |
|
Schedule G |
Must complete if Schedule H, lines 4b, 4c, or 4d are “Yes.” |
Not required. |
|
Schedule H |
Must complete. |
Not required. |
|
Schedule I |
Not required. |
Must complete. |
|
Schedule R |
Must complete. |
Must complete. |
|
Independent audit report |
Must attach. |
Not required unless Schedule I, line 4k, is checked “No.” |
Large 401(k) plans (and small 401(k) that don’t meet the DOL’s audit waiver requirements) must file an independent audit report - prepared a third-party Certified Public Accountant (CPA) – with their Form 5500. This report must include an opinion by the CPA regarding the plan’s financial statements - specifically, whether they have been fairly presented in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
A 401(k) plan can have a full-scope or ERISA Section 103(a)(3(C) audit. Under an ERISA Section 103(a)(3(C) audit, the CPA does not audit the plan investment information certified “complete and accurate” by an eligible asset trustee or custodian – which generally makes this audit type less expensive.
An audit can add thousands of dollars to the cost of filing a Form 5500, so employers typically try to avoid this requirement by keeping their 401(k) plan’s participant count as low as possible. A popular way to do that is cashing out small account balances related to terminated plan participants.
The “80-120 Rule" allows a 401(k) plan with between 80 and 120 participants on the first day of the plan year to file the Form 5500 in the same category (i.e., large or small plan) as the prior year return.
This rule makes it possible for large 401(k) plans with between 100 and 120 participants to avoid the audit requirement.
The Form 5500 and Form 5500-SF must be filed electronically using the DOL’s EFAST2 processing system. The Form 5500-EZ can be filed either electronically using the DOL system or by using a paper form.
The filing deadline for the Form 5500 is the last day of the seventh month following a 401(k) plan’s year-end (July 31 for calendar-year plans).
Yes. An employer can apply for an automatic 2 ½ month extension of time to file their Form 5500 by filing a Form 5558 (extending the filing deadline to October 15 for calendar-year plans). The Form 5558 must be filed before the due date of the Form 5500.
Unfortunately, most employers don’t realize they missed a Form 5500 filing until they receive a letter from the IRS or DOL about it – which can be a year or more after the 5500 was due. By that time, substantial penalties will have already accrued. Late Form 5500s are subject to the following IRS and DOL penalties:
However, employers who have not yet been notified by the DOL about their missing Form 5500 can file a late return using the DOL’s Delinquent Filer Voluntary Compliance Program (DFVCP) to pay a lower, flat penalty amount.
Under the DFVCP, the maximum penalty for a single late Form 5500 is $750 for small 401(k) plans and $2,000 for large plans. The DFVCP also includes a "per plan" cap. The "per plan" cap limits the penalty to $1,500 for small plans and $4,000 for large plans regardless of the number of late Form 5500s filed at the same time.
Yes. The public can view electronically-filed Form 5500s using the DOL’s Form 5500/5500-SF Filing Search.
Yes. Participants must receive a Summary Annual Report (SAR). The SAR is a summary of the Form 5500. It must include the following information:
The deadline for distributing the SAR to plan participants is the later of: 1) nine months after the end of the plan year or 2) two months after the Form 5500 was due (if an extension has been granted by the IRS).
Because a 401(k) provider generally prepares the Form 5500, meeting this annual filing requirement is generally a simple process for employers. And yet, not filing a Form 5500 timely is one of the most common 401(k) administration mistakes made by employers – triggering potentially substantial penalties.
These penalties are easily avoided when employers understand their 401(k) plan’s filing requirements. This understanding can also help employers avoid a costly audit and monitor their 401(k) provider’s job performance.