401(k) Rescue, the Ekon Benefits 401(k) Fix-It Series, describes the most common 401(k) mistakes as determined by the IRS. We provide explanations of common mistakes, suggested prevention techniques and recommendations on correction methods.

Common Mistake #12: Failure to File a Form 5500

Plans subject to the Employee Retirement Income Security Act (ERISA) must file the Annual Return/Report of Employee Benefit Plan — commonly known as Form 5500 — on time. The general deadline for submitting the Form 5500 is the last day of the seventh month following the end of the plan year.

• Plans with fewer than 100 participants may file a shorter version, Form 5500-SF.
• Certain single-participant or participant-and-spouse plans may file Form 5500-EZ.

For details on which form to file, how to file, or instructions for electronic filing via the EFAST2 system, visit www.efast.dol.gov.

Penalties for Delinquent Filings

Failure to file Form 5500 on time can result in penalties from both the IRS and the Department of Labor (DOL):

• IRS Penalty: $250 per day, with a maximum fine of $150,000 per return.
• DOL Penalty: Up to $2,739 per day, with no limit on the total fine.

For instance, if Form 5500 is filed just 14 days late, the employer could face fines of $3,500 from the IRS and up to $38,346 from the DOL.

The Department of Labor (DOL) and IRS penalties for late Form 5500 filings are adjusted annually for inflation under the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.

You can find the most recent civil penalty adjustments on the IRS Form 5500 Corner page.

How to Correct Delinquent Filings

Plan sponsors often discover missed Form 5500 filings when they receive a notice from the Department of Labor (DOL) or the IRS, or during a plan audit. In some cases – such as with new or small plans – missed filings may go undetected until a change in service providers, a plan termination, or preparation of a new Form 5500 triggers a review.

To address missed filings, the sponsor should submit all overdue Forms 5500 as soon as possible. For ERISA-covered plans, the DOL’s Delinquent Filer Voluntary Compliance Program (DFVCP) can be used to significantly reduce penalties – but only if the DOL has not yet initiated contact about the missing return.

Form 5500 filings must be submitted through the EFAST2 electronic filing system, and penalty relief must be requested according to DFVCP instructions.

Preventing This Error

To prevent this issue, plan sponsors and administrators should familiarize themselves with the filing responsibilities under the plan. Many service providers assist with the filing process and may even electronically submit Form 5500s via the EFAST2 system on the plan sponsor’s behalf.

For a complete listing of the most common 401(k) mistakes, please visit the IRS 401(k) Plan Fix-It Guide. For assistance in correcting a plan error, please contact Ekon Benefits at (314)367.6555 or info@ekonbenefits.com.