Annual Form 5500 Reporting Requirements for Welfare Benefit Plans

Virtually all plan sponsors are aware of the annual Form 5500 reporting requirement for their retirement plans, but many are not aware of the filing requirements for welfare benefit plans. In general, insurance brokers or insurance companies are required to provide the information necessary to complete the Form 5500 and related schedules; however, they do not typically complete the returns for their clients.  Therefore, it is imperative that plan sponsors understand the reporting requirements for these plans in order to avoid potentially substantial non-reporting penalties that can be assessed by both the U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS).

Which Plans Are Required to File a Form 5500?  

Under Employee Retirement Income Security Act (ERISA) of 1974, any welfare benefit plan sponsor with 100 or more participants (as of the beginning of the plan year) is required to file an annual Form 5500 and related schedules.  Sponsors with fewer than 100 participants are generally not required to file an annual Form 5500 unless the plan’s benefits are funded through as trust.  Welfare benefit plans are plans that provide benefits such as medical, dental, life, vision, disability, accident, severance pay, apprenticeship and training, and certain employee assistance programs. Some welfare plans may be exempt from filing based on legal structure of the plan sponsor, for example, a governmental or church plan under ERISA section 3(33).

 Related Schedules 

In addition to the Form 5500, plan sponsors may need to file certain schedules depending on the funding and insurance contracts of the plan. If the plan includes an insurance contract, the plan sponsor will generally receive information from the insurance company for the completion of Schedule A, Insurance Information, which reports commissions, fees, and premiums received by the insurance providers. Sponsors with self-insured plans may receive information from service providers to complete Schedule C, Service Provider Information, which reports direct and indirect fees received by the service providers.

How to file  

EFAST2, the computerized filing system of the DOL, is the only acceptable filing method for filing the Form 5500 series.

When to File  

Form 5500 and any related schedules are due seven months following the end of the plan year, which is the contract year unless a plan document specifies a different plan year end.  If a plan sponsor cannot meet the initial filing deadline, an automatic extension of two and a half months is available by completing Form 5558, Application for Extension of Time to File Certain Employee Plan Returns. 

 Penalties for Failure to File 

There can be significant penalties for failing to file a Form 5500.  Plan sponsors can be assessed penalties of up to $1,100 for each plan and for each day they fail or refuse to file a complete report subject to certain maximum penalty amounts (commonly $30,000 per year and per plan; i.e., missed filings for three plans result in a maximum annual penalty of $90,000).  However, there is relief substantial relief available.   If a plan sponsor is delinquent with its filings, the DOL Delinquent Filer Voluntary Compliance (DFVC) Program permits the plan sponsor to pay substantially reduced penalties (maximum of $4,000 per plan regardless of number of years the filing is delinquent) for voluntarily complying with their DOL annual reporting obligations.

Streamlining the Filing Process with a Wrap Plan Document  

Some plan sponsors believe that they can file all their welfare benefit plans on a single Form 5500 filing. Absent a written “wrap” plan document combining the sponsor’s welfare benefits into a single plan, filing for all benefit plans on a single Form 5500 is not permitted.  If discovered in audit or review, the IRS or DOL can impose missed filing penalties as noted above and take corrective action by rejecting the filing and requiring that each of the plans re-file separately for all prior years. In the absence of a plan document that combines the benefits into a single plan, the DOL will assess penalties based on each policy or benefit separately.  Thus, the practical reason for adopting a wrap plan document is that it enables the plan sponsor to collapse its welfare plan 5500 filings into a single filing thus eliminating much of the annual preparation expense. Further, the wrap plan document will contain important language clarifying items such as legal obligations, discretionary powers, benefit limitations compared to the policy, right to amend/terminate provisions, and claims procedures.

Impact 

With continued and increasing DOL scrutiny in the benefit plan industry and emphasis on risk management, plan sponsors should review each of their employee benefit plans and the annual filing requirements for each in order to avoid what could be substantial penalties.