Form 5500 — Annual Return/Report of Employee Benefit Plan

Who Must File Form 5500?

Form 5500 (Annual Return/Report of Employee Benefit Plan) must be filed for most qualified retirement plans (401(k), profit-sharing, defined benefit, SIMPLE IRA, SEP-IRA) that cover at least one employee other than the owner and the owner's spouse. The filing requirement applies to both funded and unfunded plans.

Form 5500-EZ for Solo Plans

Form 5500-EZ is a simplified version of Form 5500 for one-participant plans (plans that cover only the owner and the owner's spouse). Form 5500-EZ must be filed for solo 401(k) plans and solo defined benefit (cash balance) plans if the total plan assets exceed $250,000 at the end of the plan year. If total plan assets are $250,000 or less, no filing is required.

Practitioners should advise solo 401(k) and cash balance plan clients to track their plan assets carefully and begin filing Form 5500-EZ when total plan assets exceed $250,000. The failure to file Form 5500-EZ is subject to a penalty of $250 per day (up to a maximum of $150,000 per year). The IRS has a Delinquent Filer Voluntary Correction Program (DFVCP) that allows late filers to pay a reduced penalty.

Large Plan Audit Requirement

Plans with 100 or more participants at the beginning of the plan year are considered 'large plans' and must attach an independent qualified public accountant (IQPA) audit report to Form 5500. The audit must be performed by a CPA who is independent of the plan and the plan sponsor. The audit covers the plan's financial statements (statement of net assets available for benefits, statement of changes in net assets available for benefits) and tests for compliance with ERISA and the IRC.

Plans with 80–120 participants may be eligible for the '80-120 rule,' which allows a plan that was a small plan in the prior year to continue filing as a small plan (without an audit) if it has fewer than 120 participants at the beginning of the current plan year. Practitioners should advise plan sponsors who are approaching the 100-participant threshold to plan for the audit requirement.

EPCRS: Correcting Plan Errors

The IRS Employee Plans Compliance Resolution System (EPCRS) is a program that allows plan sponsors to correct qualified plan errors and avoid plan disqualification. EPCRS has three components: (1) the Self-Correction Program (SCP), which allows plan sponsors to correct certain plan failures without IRS involvement; (2) the Voluntary Correction Program (VCP), which allows plan sponsors to correct plan failures by submitting a VCP application to the IRS and paying a compliance fee; and (3) the Audit Closing Agreement Program (Audit CAP), which allows plan sponsors to correct plan failures discovered during an IRS audit.

Common plan errors that can be corrected under EPCRS include: excess contributions, missed required minimum distributions (RMDs), failure to include eligible employees in the plan, and failure to follow the plan document. Practitioners should advise plan sponsors to review their plan documents and operations annually to identify and correct any errors before they are discovered in an IRS audit.

Late Filing Penalties and DFVCP

The penalty for late filing of Form 5500 is $250 per day (up to a maximum of $150,000 per plan year). The IRS Delinquent Filer Voluntary Correction Program (DFVCP) allows plan sponsors who have failed to file Form 5500 to come into compliance by filing the delinquent returns and paying a reduced penalty. The DFVCP penalty is $250 per day (up to $1,500 per plan year for small plans, or $2,500 per plan year for large plans), which is significantly less than the maximum penalty of $150,000 per plan year.

Frequently Asked Questions