The Form 5500 is an ERISA requirement for retirement plans to report and disclose operating procedures to the Department of Labor. Each plan intending to comply with ERISA must file a Form 5500 annually.

Auditors use these filings to confirm that plans are managed according to ERISA standards. The form also allows individuals access to information, which helps protect the rights and benefits of the participants and beneficiaries covered under the plan.

As a Plan Sponsor, it is your duty to ensure your plan always remains compliant. However, it is also a good idea to be extra vigilant of red flags that the IRS and DOL commonly look for on Form 5500 filings.

1. Not making participant deferral remittances “as soon as administratively possible” is considered a fiduciary breach and can make the plan subject to penalties and potentially disqualification. Delinquent remittances are considered to be loans of plan assets to the sponsoring company.
2. An ERISA fidelity bond (not to be confused with fiduciary insurance) is a requirement. This bond protects participant assets from being mishandled, and every person who may handle plan assets or deferrals must be bonded for a minimum of 10% of plan assets, with a required maximum of $500,000.
3. Loans in default for participants not continuing loan repayments, or loans that are 90 days in arrears, are a fiduciary breach that can make the plan subject to penalties and disqualification.
4. Corrective distributions, return of excess deferrals and excess contributions, along with any gains attributed must be distributed in a timely manner (typically two and a half months after the plan year ends). In some cases these fiduciary breaches can be self-corrected if done within the same plan year in which they occurred, and may be considered additional breaches if they extend beyond the current plan year.

It should be noted that this is a partial, non-exhaustive list of common Form 5500 red flags. For more background on Form 5500, visit the Society for Human Resource Management online, “Regulatory 5500: What is Form 5500, and where are instructions for completing it?”

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