QUESTION: We just discovered that we should have been filing an annual Form 5500 for our fully insured disability plan. How can we correct this?
ANSWER: If no filing exemption applies (see our Checkpoint Question of the Week), there are potentially large penalties for Form 5500 compliance failures, so your interest in correction is appropriate. For each late or unfiled Form 5500, the DOL may assess a penalty of over $2,000 per day (indexed annually) for each day it remains unfiled. Moreover, penalties may be assessed for delinquent Form 5500s back to the 1988 plan year. The good news is that these penalties may be greatly reduced under the DOL’s Delinquent Filer Voluntary Compliance (DFVC) Program, which enables plan administrators to voluntarily correct failures to timely file Form 5500 by submitting completed Form 5500s for each plan year in question and paying a specified penalty.
Availability of the DFVC Program. The program is not available if the DOL has notified the plan in writing of a failure to timely file a Form 5500. It can be used only for filing Form 5500s that have not been timely filed—not to correct previous incomplete or deficient filings.
Electronic Filing Required. Form 5500 filings under the program must be made through the EFAST2 electronic filing system—the DOL no longer accepts paper filings. A Version Selection Tool is available to assist filers in determining which version of Form 5500 (and associated schedules and instructions) to use for a DFVC filing. In general, filings that are more than three plan years late use the version for the current filing year, while others use the version for the missed plan year. In either case, forms and schedules must be completed with information relating to the missed plan year.
Penalty Amounts Under DFVC. The penalties payable under the DFVC Program are much lower than those that may be imposed when the DOL identifies a Form 5500 filing failure. The DFVC penalty amount is $10 per day from the due date (without regard to any extensions that might have applied) until the filing date; the penalty is capped according to plan size. For small plans (generally, fewer than 100 participants at the beginning of all plan years covered by the DFVC submission), the maximum penalty is $750 for a single delinquent Form 5500, or $1,500 for a DFVC submission relating to multiple plan years. (Small plans sponsored by tax-exempt organizations pay a penalty capped at $750 per DFVC submission, regardless of how many plan years are covered by the submission.) For large plans, the maximum penalty is $2,000 for a single delinquent Form 5500, or $4,000 for a DFVC submission relating to multiple plan years. To take full advantage of the caps, it is best to file all late or unfiled Form 5500s for the same plan under a single DFVC submission. It is not possible to request a waiver of DFVC Program penalties (regardless of the circumstances), and the penalties may not be paid from plan assets.
Paying DFVC Penalties. Penalties must be paid by mail (via check) or electronically. An online DOL Penalty Calculator can be used to accurately calculate the payment due. While use of the calculator is not required, the DOL encourages its use to help avoid errors that delay participation in the program. Filers using the calculator can pay DFVC Program penalties automatically online. (The online payment system is separate from the EFAST2 electronic filing system.)
Before deciding to use the DFVC Program, you should be aware that incomplete or otherwise deficient DFVC filings may create additional penalties. And use of the program constitutes a waiver of certain rights by the plan, including the right to contest the DOL’s assessment of the penalty amount.
Lastly, while the DFVC Program is maintained by the DOL to address reporting failures under ERISA, the IRS will also provide penalty relief for delinquent filers of Code-required Form 5500s who satisfy the DFVC program’s conditions.
For more information, see EBIA’s ERISA Compliance manual at Sections XXXII.B (“Correcting Late and Unfiled Form 5500s: Delinquent Filer Voluntary Compliance Program”), XXII.D (“Consequences of Form 5500 Noncompliance”), and XXII.O (“Submitting Delinquent Form 5500s Under EFAST2”). See also EBIA’s Self-Insured Health Plans manual at Section XXII.F.1 (“Form 5500 Compliance Failures”) and EBIA’s 401(k) Plans manual at Section XXXI.I (“DFVC Program Using EFAST2”).
Contributing Editors: EBIA Staff.