Long ago, it seems, IRS Notice 2002-24 suspended the filing requirement imposed on cafeteria and fringe benefit plans. However, the filing requirement for welfare plans remains unchanged. That’s where the doubts start to creep into the minds of plan sponsors and plan service providers (PSPs) who assist in the administration of benefit plans.
So many questions to answer—including: “Who needs to file Form 5500?” “What is a welfare benefit plan?” “When is a welfare benefit plan required to file?” and “How many Form 5500s do employers need to file?”
Short Cut for Cafeteria Plans
• A premium Only Plan (POP) does not have to file a Form 5500.
• A Cafeteria Plan containing a health flexible spending account (FSA) or a Health Reimbursement Arrangement (HRA) does not have to file a Form 5500 if:
There are fewer than 100 participants in the health FSA or HRA as of the beginning of the plan year, and
The benefits are paid from the general assets of the employer.
An employer that sponsors welfare benefit plans covered by Title I of ERISA is required to file a Form 5500 for those plans. However, there are a couple of exceptions that apply, depending on the type of employer sponsoring the plan. A general exception applies to:
• A governmental plan; or
• A church plan under ERISA section 3(33).
Generally, a Form 5500 will be required if: (1) The plan is deemed to have plan assets; (2) The plan funds are separated from the employer’s general assets; (3) The plan funds are held in trust; or (4) The plan funds are forwarded to a third party administrator.
Most employer plans requiring a 5500 will complete all questions on Form 5500, including 5, 6a through 6d, 8b and 9a and 9b. Depending on the funding arrangement or payments from the plan, attaching Schedules may be applicable.
The 2009 “Instructions for Form 5500” have been modified to make it clear that plans that are paid from the general assets of the employer need not file Schedule C.
What Is a Welfare Benefit Plan?
Welfare benefit plans provide benefits such as medical, dental, life insurance, apprenticeship and training, scholarship funds, severance pay and disability. The health FSA contained inside of a cafeteria plan and an HRA both qualify as welfare benefit plans.
When does a welfare benefit need to file a Form 5500? Forms must be filed by the last day of the seventh calendar month after the end of the plan year. A plan may obtain a one-time extension of time to file. Form 5558 must be sent by the original due date in order to gain a 21/2 month extension of time in which to complete and file the Form 5500.
How Many Form 5500s?
If an employer sponsors several welfare benefit plans and a cafeteria plan, how many Form 5500s would the employer have to file? This is a very common question and confuses even the best benefit consultants. Let’s look at one example that will clarify the answer.
An employer offers a health FSA and dependent care benefit through a cafeteria plan and allows employees to pay their health insurance and employer-sponsored group term life insurance premiums through the cafeteria plan with pre-tax dollars. How many Form 5500s must this employer file?
First, let’s count the number of welfare benefits. The health FSA inside of a cafeteria plan would be one, plus the health insurance plan and group term life insurance offerings would count as plans two and three.
Second, is there an exemption for filing a Form 5500 for any of the welfare benefit plans? The health FSA has 85 participants with the benefits paid from the general assets of the employer. The health insurance plan has 125 participants and the group term life plan has 48. Both the health insurance plan and the group term life products are fully insured.
The health FSA and the group term life plans fall under an exemption rule. Neither has more than 100 participants. The group term life plan is “fully insured” because the benefits are paid through an insurance contract, and the health FSA is “unfunded” because the benefits are paid from the general assets of the employer.
That leaves the health insurance plan, which requires a filing because there are more than 100 participants at the beginning of the plan year. If the employer’s health FSA and group term life plan included more than 100 participants, the employer would have to file three separate Form 5500s—one for each plan.
It should be noted that employers can maintain what is called a “wrap” document. This all-encompassing document references all of the employer’s plans that are on the same plan year. One Form 5500 may be filed for the “wrap” plan that includes information for all the component plans.
Delinquent Filer Voluntary Compliance Program
Okay, so an employer should have filed a Form 5500 for its welfare benefit plan, but may not have realized that having more than 100 participants put the plan into a “must file” status. The Department of Labor (DOL) provides a way to help employers get back into compliance through the Delinquent Filer Voluntary Compliance (DFVC) program.
The DFVC program is available to plan sponsors who have failed to file required Form 5500s in a timely manner. If a filing is brought current prior to an audit by the DOL, significantly reduced penalties are imposed.
Amount of Penalties
• Per Day Penalty. The basic penalty under the program is $10 per day.
• Per Filing Cap. The maximum penalty for a single late annual return has been reduced: From $2,000 to $750 for a small plan (one that covers fewer than 100 participants at the beginning of the plan year). From $5,000 to $2,000 for a large plan (one that covers 100 or more participants at the beginning of the plan year).
• Per Plan Cap. For plan administrators who have failed to file an annual return for multiple years, the per plan cap limits the penalty to $1,500 for a small plan and $4,000 for a large plan, regardless of the number of late annual returns filed for the plan at the same time.
• Small Plans sponsored by tax-exempt organizations. For a small plan sponsored by a 501(c)(3) organization, a special per plan cap of $750 applies, regardless of the number of late annual returns filed for the plan at the same time.
Don’t Wait to Take Advantage of a DFVC Program
The DOL and IRS have indicated the initiation of a joint project to step up efforts in identifying and auditing plans that are delinquent on their reporting requirements. Because penalties assessed on filings brought current under the DFVC program are significantly lower than penalties that could be assessed if the DOL audits the plan, plan sponsors that have delinquent filings should strongly consider bringing those filings current as soon as possible.
New for 2010
Starting January 1, 2010, Form 5500 filing became totally electronic. This electronic filing requirement is called EFAST2 and requires the employer to register for credentials. The employer plan sponsors and administrators that sign the Form 5500 must register at the Department of Labor website. They will receive IDs and PIN codes to enable them to electronically sign and submit their forms.
If your clients have questions about this new obligation, send them to the DOL website at: www.efast.dol.gov/welcome.html for additional information involving electronic filing of their Form 5500. Ë›
The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.
