Hot tips on filing Forms 5500 (for those who file and those who should but don't).

• Author: Ginsburg, Ted

Sponsors of employee retirement and welfare benefit plans are required to make their annual filing of Form 5500, Annual Return/ Report of Employee Benefit Plan (With 100 or more participants), by the end of the seventh month following the plan year-end.

By correctly addressing certain often misunderstood areas of the form, plan sponsors can avoid unwarranted scrutiny from the IRS or the Department of Labor (DOL). There are also steps that plan sponsors who are out of compliance with the Form 5500 filing requirements should take.

Nonfiling

The risks of not filing Form 5500 for a plan are significant. The Service can assess a penalty of $25 per day on each late return, with a maximum penalty of $15,000. The DOL has the authority to assess a penalty of $300 per day, with a maximum penalty of $30,000 per report.

Lateness is measured from the original due date of the report without regard to extensions. If a Dec. 31, 1994 plan year with a Form 5500 due by July 31, 1994 is extended to Oct. 15, 1995 but filed on Aug. 12, 1996, the report is more than one year late. The time runs from July 31, 1994, not the extended due date of Oct. 15,1995.

The most common nonfilers are employers that sponsor health and welfare plans. Many employers believe they are not subject to filing requirements for these plans; however, in general, if an employer provides health, dental, group life, disability or other welfare benefits to 100 or more employees, it must file Form 5500 each year.

Another group of nonfilers are sponsors of nonqualified deferred compensation plans. The general rule is that Form 5500 is required unless a special "one-time" filing was made with the DOL in the year the plan was established.

If a late Form 5500 is filed, the penalty exposure is $50 per day to the DOL instead of the $300 per day nonfiling penalty. The IRS $25 per day penalty is still applicable in addition to the DOL penalties.

Recognizing that these onerous penalties often prevent plan sponsors from filing late Forms 5500, the DOL initiated a Delinquent Filer Voluntary Compliance (DFVC) program last spring. This program limits the DOL penalties for late filing to $5,000 per Form 5500 and $2,000 per Form 5500-C/R, Return/Report of Employee Benefit Plan (With fewer than 100 participants). If the reports are less than one year late, the maximum penalty is $2,500 per Form 5500 and $1,000 for Form 5500-C/R.

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