Summer brings the deadline for signing and submitting Form 5500 to most retirement plan sponsors. Typically, we rely on service providers to prepare this annual report, so all we have to do is sign off. Risk management professionals remind us, however, to take sign off seriously. Errors can be costly—and as fiduciaries, we can even face the penalty of perjury.
Form 5500 Basics
Essentially, the purpose of Form 5500 is to provide an annual status report on employee retirement savings, with assurance that these savings are protected. Completion of Form 5500 satisfies reporting requirements for the Employee Retirement Security Act (ERISA) and is used by three federal agencies as a major enforcement and oversight tool: the Department of Labor (DOL); the Internal Revenue Service (IRS) and the Pension Benefit Guaranty Corporation (PBGC). ADP provides this helpful summation of Form 5500:
By completing and filing the correct version of Form 5500, organizations provide the government with key details about their plan’s financial condition, investments and operations. The objective is to ensure that employee contributions and investments remain protected. Generally, any business that sponsors a retirement savings plan must file a Form 5500 each year that the plan holds assets….The three variations of the form are as follows:
- Form 5500
IRS Form 5500 applies to most public and private sector businesses providing plans to 100 or more participants. It must be filed electronically using the DOL ERISA Filing Acceptance System (EFAST2).
- Form 5500-SF
This shortened version of Form 5500 form applies to companies that sponsor plans with fewer than 100 participants. It, too, must be filed electronically using the EFAST2 system.
- Form 5500-EZ
One-participant plans that cover a business owner and a spouse, but no other employees, may require Form 5500-EZ. If the total plan assets are $250,000 or less, filing is not necessary. Those who do have to file Form 5500-EZ can do so either electronically or by mail.
Though preparation of Form 5500 is generally done by third party service providers, retirement plan sponsors are advised to take their sign off seriously: “Form 5500 is filed under penalty of perjury which means that anyone signing should, at a minimum, review the form at a high level to be sure that nothing in the form is obviously inaccurate.” One common compliance trigger related to the filing of Form 5500 is failure to record an up to date and adequate ERISA fidelity bond, obtained from a surety listed by the U.S. Department of Treasury. ERISA Fidelity bonds are specifically required by ERISA. The purpose of ERISA bonds is to protect the assets of the retirement plan from theft. Across the country, retirement plan sponsors ensure continuous compliance by obtaining their ERISA fidelity bonds from leading national provider, Colonial Surety Company. Uniquely, Colonial offers multi-year ERISA bonds and includes retroactive ERISA fidelity bond coverage for years when the plan was not adequately covered. Since the ERISA bond does not protect the plan sponsor, Colonial Surety also makes it possible for plan sponsors to affordably protect themselves by adding on fiduciary liability insurance.
In addition to ensuring ERISA bonds are up to date, before signing off on Form 5500, ADP advises retirement plan sponsors to proofread carefully: “Submitting an insufficient or incorrect Form 5500 can result in rejection and increases compliance risk. Both the DOL and IRS may impose fines for inaccuracies, especially if the information is willfully omitted or false.” Specific pointers for reviewing Form 5500 prior to sign off include:
- Reread answers carefully
- Avoid replicating answers from last year’s form
- Check that information is input in the proper sections using the spaces provided
- Double-check names, plan numbers and codes for typos and accidental errors
- Preview the form in IFILE by clicking the “View PDF” option before submitting
- Submit before the Form 5500 due date. The due date for every type of Form 5500 is the last day of the seventh month after the plan year ends. If the plan follows the calendar year, this date would be July 31. Employers can request a two-and-a-half-month extension, giving them until October 15 to submit their form and supporting documents.
Good To Know: Mistakes?
Even with diligent plan oversight, mistakes happen. As a retirement plan sponsor, if you encounter errors in plan administration, it’s wise to pursue the Department of Labor’s recently updated Voluntary Fiduciary Correction Program. Plan Sponsor underscores the importance of proactively catching and correcting fiduciary errors: “The VFCP is designed to encourage correction of fiduciary breaches and compliance with the law by allowing plan sponsors to avoid potential DOL civil enforcement actions and civil penalties by voluntarily correcting eligible transactions in a manner that meets the requirements of the program.” Given that retirement plan sponsors can be held personally liable for shortcomings vis a vis their fiduciary obligations, it’s also critical to have fiduciary liability insurance, and Colonial Surety Company makes it efficient and affordable to add it on to ERISA bond coverage.
Colonial Surety Company, a leading, national and Treasury-listed bond writer, makes ERISA Fidelity Bond compliance fast and easy. Even better for plan sponsors? You can affordably add on Fiduciary Liability Insurance to protect yourself, since the ERISA Bond protects the plan. Everything plan sponsors need to be compliant and protected is a few clicks away:
- Just Log In, then: get a quote, pay, and download your coverage.
- Choose multi-year options: Lock in rates and avoid future compliance hassles.
- By adding on Fidelity Liability Insurance, for a few dollars a day, you’ll be covered with defense costs and penalty limits up to $1,000,000, if faced with alleged or actual breaches of duty in connection with the employee retirement plan.
- Obtain Cyber liability coverage–it’s included at no extra cost, providing additional protection–for the plan and your company–against regulatory actions related to data and privacy, as well as expert response services.
ERISA Bond+Liability Insurance HERE
Need help? Our knowledgeable, New Jersey based ERISA service team is available directly, Monday-Friday, 8:30am-5:30pm EST at 888-383-3313 and via email: erisadept@colonialsurety.com.
Providing customers with knowledgeable and friendly service since 1930, Colonial Surety Company is rated “A Excellent” by A.M. Best Company, U.S. Treasury listed and in business all across the country.