Filing an important document like Form 5500 after the deadline typically results in penalties, from $25 per day up to a maximum of $15,000 from the IRS, to $1,100 per day with no limit from the Department of Labor (DOL). So, how can you avoid having to pay penalties, or at least avoid some of them, when you file late?
Oh No, I'm Late Filing — What Do I Do?
Mistakes happen. If you realize you've forgotten to file Form 5500 you may file a delinquent return as soon as possible. The IRS offers a penalty relief program for sponsors of some non-ERISA plans who need to file Form 5500. If you are within an ERISA plan, consider The Department of Labor's Delinquent Filer Voluntary Compliance Program (DFVCP) to help ease the burden of penalties.
What is the DFVCP?
Think of the DFVCP as a forgiveness option. This program is a way for plan administers to keep penalties from spiraling out of control. To be eligible for the DFVCP you must be a plan administrator with filing obligations under Title I of ERISA, and have notified the DOL (in a timely manner) that your form 5500 has not been filed yet.
What Does it Mean to Have Filing Obligations Under Title I?
The provisions for Title I include most private sector employee benefit plans. It’s likely you’re covered under Title I If you're the administrator of a plan voluntarily established and maintained by an employer, or an employee organization, with responsibilities such as:
- Managing plans for participants and beneficiaries;
- Ensuring plans refrain from conflict of interest transactions;
- Funding benefits in accordance with the law and plan rules;
- Reporting and disclosing information on the operations of plans; and
- Providing documents to ensure compliance with the law.
What Benefits Does DFVCP Offer?
The maximum penalty for a single late annual report is $750 for a small plan (generally a plan with fewer than 100 participants at the beginning of the plan year) and $2,000 for a large plan.
The DFVCP also includes a "per plan" cap. This cap is designed to encourage reporting compliance by plan administrators who have failed to file an annual report for a plan for multiple years. The "per plan" cap limits the penalty to $1,500 for a small plan and $4,000 for a large plan regardless of the number of late annual reports filed for the plan at the same time. While these fees may seem large, consider that they may be easier to handle than a $1,100 per day fine.
How Do you File a Delinquent Form 5500?
You would file your late Form 5500 just as you need to file on-time reports — through the DOL’s certified electronic system, EFAST2. Remember, there are no additional extensions offered in conjunction to the DFVCP option, so it's important to participate in accordance to the plan to avoid additional fees.
Form submission due dates can sneak up on you, but it's important to recognize how costly it can be to simply miss a deadline. It’s also important to know your options in order to help limit penalties. If you fear you’ve missed a deadline, or have in the past, perhaps the easiest way to avoid penalties is to work with a third-party benefits organization that can help you stay on schedule.