Every once in awhile, you get the opportunity to see someone really show that they know their industry and care about their clients. A few weeks ago Mike Johnson of Cottingham & Butler showcased both of them to me. He was talking about how companies are coping with the changes in health care opportunities (Not just the ACA, but also mergers of health care providers and insurance). Then he switched to the fact that many companies forget to even file Form 5500s for their Health and Welfare Plans. Say what? I don’t even know what a Form 5500 is – let alone that people should be filing them! After several questions, I got it sorted out. Lucky for all of us, Mike agreed to do a guest post for us explaining it again. So yeah, two guest posts in a row. I should save these for when I do something like, oh, I don’t know, break a leg. But I can’t because this is so important. And so without further ado- Take it away, Mike!
Picture this – you’re feverishly working at finalizing your annual benefits insurance renewals. You’ve had a great couple of years and your business has been growing, several months ago you hired your 100th employee! Shortly after your renewal you received a bunch of information from your insurance carriers or TPA labeled Schedule A’s and/or Schedule C’s. What exactly did they just send me? And where did this information come from? I am referring to a common issue I have seen over the past four years concerning Health & Welfare 5500 filings. Not understanding these requirements could cost you $2,063 per day.
Every year, thousands of organizations that sponsor 401(k) plans and health & welfare plans receive notice that they’re going to have a Department of Labor (DOL) audit. These audits can be triggered for a variety of reasons, but often it’s the detection of an incorrectly filed 5500, or a total failure to file that raises the red flag. Today, I am going to focus largely on the health & welfare 5500 requirements which are more complex than pension and retirement 5500 filing requirements that most people who sponsor a 401k plan are familiar with.
So what is a Form 5500? Form 5500 is a part of the Employee Retirement Income Security Act’s (ERISA) reporting and disclosure framework. This process is intended to ensure that employee benefits plans are operated and managed in accordance with prescribed standards. Form 5500, is joint effort between the IRS, the Department of Labor (DOL) and the Pension Benefit Guaranty Corporation (PGBC).
General Form 5500 filing requirements–
401K Plans: All multiple-participant 403(b), 401(k), pension, and profit-sharing plans subject to Title I of ERISA must file an annual report (Form 5500) with the Employee Benefits Security Administration, an agency of the Department of Labor (DOL). Most 401(k) providers file these on the plan sponsors behalf and are traditionally very accurate as the requirements are very black and white. Retirement Plan 5500 IRS Website
Health & Welfare Plans: The Employee Retirement Income Security Act (ERISA) states that any plan sponsor with a welfare benefit plan with 100 or more participants as of the beginning of the plan year is required to file an annual Form 5500 and related schedules. Plan sponsors with plans with fewer than 100 participants are generally not required to file an annual Form 5500 unless the benefits are funded through a trust. Governmental and church plans as defined under ERISA are usually exempt from the filing requirements. The Supreme Court release issued guidance on what is considered a religious ERISA exempt plan. * As of right now plans with fewer than 100 participates is scheduled to be a requirement starting in 2019
The Department of Labor has made its desire to capitalize on these mistakes fairly well known. In 2012, Deloitte Consulting for the DOL found that nearly 22% of health & welfare Form 5500’s had discrepancies when referenced against the required schedules. This also isn’t accounting for the thousands of organizations that are subject to the 5500 filing requirements that simply aren’t filing.
Common Mistakes:
- Not knowing the requirement – The most costly and common error I find every single year. Welfare benefit plans provide benefits such as medical, dental, vision, life insurance, long/short-term disability, accidental death & dismemberment, and severance pay; these include fully insured benefits, self-insured benefits, and a combination of the two. For example: Many organizations solely focus on health plan enrollment and completely forget their life, dental, etc plans. Company sponsored plans like Life insurance where employees are automatically enrolled is when you achieve the 100 threshold quickly without realizing it which creates a large exposure.
- Not knowing how many welfare plans an employer has- Plan sponsors need to determine if they have one or more established plans for 5500 filings. If it is determined that more than one plan exists (more than one plan with 100+ employees enrolled at the beginning of the plan year), a plan sponsor should consider adopting a “Wrap” plan document to consolidate all benefits plans into one ERISA plan number. This is especially important for fully iInsured companies for multiple reasons.
- Failure to attach all required schedules and attachments to the return before filing. What schedules you are required to attach is based on the funding mechanism of the plan (Self-Funded or Fully Insured).
- Late filings – Generally speaking the due date is the last day of the seventh month after the plan year ends. (July 31st for a calendar year plan). Plan sponsors also fail to provide the Summary of Annual Report (SAR) to plan participates after the 5500 filing is complete.
- ERISA Reporting Year vs. Policy/Contract Year: This is another common crucial mistake employers make. There is a difference in the annual renewal timeframe of an insurance policy or contract compared to the definition of the ERISA Plan Year. This is a very common mistake for employers who have “off-plan year” renewals.
What should be my next steps if I inadvertently failed to file a 5500?
Remember! It is important to file a 5500 for every year and for every plan that would have been required. The DOL offers a program called the Delinquent Filer Voluntary Compliance Program (DFVC). This program greatly reduces your liability. Utilizing the DFVC Program is strongly advised for any delinquent filings! This is especially important because if the DOL issues a notice of intent to assess a penalty, the plan is now not eligible for the DFVC program and subject to the much larger penalty structure. Generally speaking the DFVCP penalty is capped at $1,500 per plan for most small plans, $4,000 per plan for large plans for health & welfare filings. Significantly cheaper than the $2,063 per day per line figure.
The DOL is absolutely paying more attention to this issue! Especially where the employer files an annual Form 5500 for a retirement or pension plan that indicates there are more than 100 participants in that plan, but not showing a single filing on the health & welfare side. If you have any questions or concerns, please feel free to contact me.
And if you do want to contact Mike, you can do so with the information below. It’s amazing what information you can get from him over a cup of coffee!
Mike Johnson
Vice President – Employee Benefits
608-459-0270
[email protected]
Hausmann-Johnson Insurance – www.hausmann-johnson.com