It can be extremely costly if you miss the filing deadline for Form 5500, Annual Return/Report of Employee Benefit Plan, for retirement and health and welfare plans. It is important to have safeguards in place to avoid any penalties by ensuring that meeting filing deadlines never falls between the cracks.
Adding Up Penalties
If you failed to timely file Form 5500, on or after November 2, 2015, then the maximum penalty for 2017 is now $2,097 per day after the filing deadline. The civil penalties are adjusted each year by the Department of Labor (“DOL”). The previous $1,100 daily penalty ceiling is still applied to delinquency periods that started before then.
That means, for example, that if you heedlessly neglected to file a 5500 that was due on September 1, 2015, and didn’t file it until December 1, 2017, you could owe up to approximately $66,000 for the period before the penalty rose, and then approximately another $1.6 million for the remaining period of the delinquency.
Keep in mind that the penalties noted above are assessed by the DOL and the IRS can impose additional penalties for late filings. Currently, the penalty is $25 per day up to a maximum penalty of $15,000.
Remember that the penalty calculation is cumulative if you neglect to file two years’ worth of Forms 5500. That is, the DOL calculates the fine based on the sum of the total days each form was late, as opposed to just counting the days since the first late form was due.
If you fail to furnish all the information required on the Form 5500 — such as not attaching an independent auditor’s report if your plan requires it — you could still be liable. Filing an incomplete Form 5500 can be treated the same way as not having filed the form at all. Generally, though, the DOL will inform you of the missing data, and you’ll have 45 days to submit the missing information before becoming subject to penalties.
Remedying Potential Delinquency
There is an opportunity to reduce your penalties under the DOL’s Delinquent Filer Voluntary Compliance Program (“DFVCP”) if you discover that you’re delinquent with a Form 5500 filing. It is important to do so before receiving a notice of your filing delinquency from the DOL. It’s a two-step process:
Step 1. Electronically file a complete Form 5500 or Form 5500-SF, with all required schedules and attachments, using the DOL’s EFAST e-filing system. (https://www.efast.dol.gov/welcome.html)
Step 2. Calculate your pentalty by using the online calculator, and then pay it either electronically or by check.
Each day the annual report is filed late, there is a $10 per day penalty for small plans (those with fewer than 100 participants), to a maximum of $750 (or $1,500 if multiple late filings are involved). Large plans must pay the same $10 per delinquent day penalty, but with a higher cap ($2,000 per plan or $4,000 for multiple late filings).
It’s likely that the IRS will waive any penalties that it may assess if you use the DOL’s DFVCP program through the DOL
Keeping Up to Date
As a reminder, seven months following the end of the plan year is the normal deadline for the Form 5500 filing. Also, you can file for a two-and-a-half-month filing extension before the deadline, by using the Form 5558, “Application for Extension of Time To File Certain Employee Plan Returns.”