New IRS Project Sets its Sights on Form 5500 Non-Filers

Chris Allesee

In a recent blog post, we talked about the value of knowing whether certain types of benefit programs are subject to ERISA’s Form 5500 filing requirements, including life insurance,  accident, or disability coverage. It turned out to be auspicious timing, as the IRS Employee Plans Compliance Unit announced a new project Monday that focuses on identifying Form 5500 non-filers. The IRS will compare payroll and plan data provided by employers to records provided by the Department of Labor, and will send letters to those that may have failed to file a Form 5500 for the 2011 plan year. If the plan sponsor can’t respond with an explanation as to why it did not file (e.g., the plan is insured or unfunded and there are less than 100 participants), then it will be on notice and may face penalties for failure to file. And even though this program focuses on 2011 filings, we’d bet that the DOL will keep an eye on the responses to follow up on actual non-filers for later years.            

Fortunately, the DOL offers a delinquent filer program. The program offers relief in the form of dramatically reduced penalties – under ERISA, $1,100 per day for each Form 5500 that is late with no cap (plus $25 per day to the IRS up to $15,000 per form) is reduced to only $10 per day, up to a capped amount. The cap under the delinquent filer program varies based on the size of the plan and the number of years the sponsor failed to file. But, even for a large plan that did not file for multiple years, the cap is $4,000 per plan – which is less than the standard ERISA penalty for a single Form 5500 that is only four days late.    

The wildcard in this new IRS project is the extent of the DOL’s collaboration.  The FAQ for the DOL’s delinquent filer program provides that a plan that receives a late-filer letter from the IRS will still be eligible to participate, but a plan that receives a late-filer letter from the DOL will not. There is no indication that the DOL will stamp its name on the IRS letters or immediately issue its own letter, so these plans may still be eligible for relief.  But if you discover you should be filing, why wait and take the chance? If you do not file a Form 5500, take a second look at your health or welfare benefit plans to make sure they are not subject to ERISA, or that your plan meets an exception to the filing requirements. For any filings you may have missed, consider submitting under the DOL’s delinquent filer program as a proactive measure, or you may wind up explaining your actions to the IRS and might even lose out on the chance for a far cheaper resolution through the DOL’s delinquent filer program.