We often receive questions regarding the audit and federal reporting requirements for employee benefit plans (401k, 403b, defined benefit, health and welfare, Section 125). This FAQ list addresses some of the most common questions and also includes helpful links for further information.
Does your plan need an audit?
Generally, plans with 100 or more participants at the beginning of the plan year are required to file Form 5500 as a large plan, including Schedule H, thereby requiring an audit. However, plans which have between 80 and 120 participants at the beginning of the plan year may file Form 5500 in the same category as they filed in the previous year. These plans may be able to complete Schedule I and file as a small plan under the 80 – 120 rule, thus not requiring an audit.
How is the participant count determined for a retirement benefit plan?
Retirement benefit plan participants include all active participants, which are those individuals currently employed with the plan sponsor who have met the eligibility requirements of the plan, even if they have elected not to participate, retired/separated individuals with account balances in the plan and any deceased participants who have beneficiaries receiving or entitled to receive benefits.
When is Form 5500 due?
Form 5500 is due on the last day of the seventh month after the plan year-end (July 31st for calendar year-end plans). A two and a half month extension can be requested by filing a form 5558 before the due date of the 5500. https://www.irs.gov/Retirement-Plans/Form-5500-Corner
How do you select a qualified auditor for the plan?
One of the most important duties of the plan administrator is to hire a qualified independent public accounting firm. Incomplete, inadequate or untimely audit reports can result in penalties being assessed to your plan. Follow this link for more information on selecting an auditor for your employee benefit plan: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/publications/selecting-an-auditor-for-your-employee-benefit-plan.pdf
What are the responsibilities of plan fiduciaries?
Fiduciaries are subject to certain standards of conduct because they act of behalf of plan participants. Fiduciaries have the following responsibilities: acting solely in the interest of plan participants; carrying out duties with skill, prudence and diligence; following plan documents; diversifying plan investments; paying only reasonable expenses of administering the plan; avoiding conflicts of interest.
When does the employer need to deposit employee contributions into the plan?
The Department of Labor’s (DOL) participant contribution regulation requires employers of all sizes to transmit employee contributions to a plan as soon as they can be segregated from the general assets of the employer, but in no case later than the 15th business day of the month immediately following the month in which the contribution is either withheld or received by the employer. The DOL has indicated that the 15th business day is not a safe harbor; plans should deposit contributions as soon as administratively possible upon segregation of the assets. In evaluating the earliest reasonable date for deposits to be made, the DOL will consider the frequency of payrolls, how quickly payroll taxes are deposited, and the pattern established by the employer for making deposits.
The DOL issued an amendment to the participant contribution regulation creating a safe harbor rule for small plans (those with less than 100 participants) under which the employer will be in compliance with the law if participant contributions are deposited by small plans within 7 business days of withholding or receipt.
What is the Voluntary Fiduciary Correction Program (VFCP)?
The VFCP is a program that allows plan officials to voluntarily correct 19 specific violations. If an acceptable correction is made, the Department of Labor will issue a no action letter. Follow this link for more information on the VFCP: https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs
What information and reports are required to be provided to plan participants?
A Summary Plan Description (SPD) must be provided to new employees within 90 days after becoming covered by the plan. A Summary Annual Report (SAR) should be provided to all participants annually. Participants have the right to request the plan’s latest 5500, the plan document, trust agreement, and any collective bargaining contracts associated with the plan.
Should I file a Form 5500 for our Health & Welfare Plan?
Generally, welfare benefit plans with more than 100 participants on the first day of the plan year must file Form 5500 each year.
Plans covering fewer than 100 participants that are unfunded, fully insured, or combination of insured and unfunded are not required to file. A plan with benefits paid solely from the general assets of the employer are considered unfunded. Plans which receive contributions from active or former employees and/or use a trust to hold plan assets or act as a conduit for the transfer of plan assets are considered to be funded plans.
Other exceptions to filing welfare benefit plan Form 5500s are listed in the Form 5500 instructions; see https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500 for additional detail.
Helpful Links
Department of Labor – Employee Benefits Security Administration – https://www.dol.gov/ebsa/
Form 5500 and Instructions – https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500
EFAST2 Filing – https://www.efast.dol.gov/welcome.html
Retirement Plans A –Z – https://www.irs.gov/retirement-plans
Dollar Limitations on benefits and contributions – https://www.irs.gov/Retirement-Plans/COLA-Increases-for-Dollar-Limitations-on-Benefits-and-Contributions
Determination, Opinion and Advisory Letters – https://www.irs.gov/Retirement-Plans/Determination,-Opinion-and-Advisory-Letters
IRS Fix-It Guides – https://www.irs.gov/Retirement-Plans/Plan-Sponsor/Fix-It-Guides-Common-Problems-Real-Solutions
Voluntary Fiduciary Correction Program- https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs