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What Items Should You Review on Your Form 5500?

Published by Kim Moore on Jul 1, 2021 6:00:00 AM

New - 2021 Form 5500 Deadline - August 2nd

Most 401(k) Plans are run on a calendar year basis (January 1 to December 31). For those Plans, the Form 5500 is due no later than midnight in your time zone on July 31st each year. However, since the end of July falls on a weekend for 2021, you actually have until midnight on August 2nd this year. That means that your service provider should be providing a draft copy of the Form 5500 for your review shortly if they haven’t already. As this Form is used by both the Department of Labor and Internal Revenue Service and fines/penalties can accrue for errors, it is very important that you take time to review the information contained on the form. Please remember that these returns are filed on an electronic database called EFAST. This allows the agencies to easily review items included on the returns for potential non-compliance.

  1. Demographic Information about the Plan – at the very beginning of the form, you are required to include the company plan name that sponsors the Plan, the legal Plan name, the Employer Identification Number (EIN) associated with the Plan, and the Plan number. Also, on the second page of the form are various numbers of employees/participants. Errors in these areasreview form 5500 can cause problems for the Plan Sponsor. For example, the IRS expects a Form 5500 to be filed each year until the Plan terminates and files a final return. If you change the name or EIN of your Plan and do not indicate that on the 5500, the IRS will send you a notice of non-compliance since a form was not filed for the previous EIN number. In addition, the employee counts on the second page determine if an audit is needed. Errors here can be costly as you will have to pay for an audit that wouldn’t otherwise be required.

  2. Fidelity Bond – you are required to include information regarding the fidelity bond for your Plan. You will indicate if you had a bond in place during the year and the amount of coverage. DOL regulations require bond coverage of at least 10% of the number of assets at the beginning of the Plan year. There are minimum and maximum limits in place as well. Now is a good time to review the coverage you have in place to ensure the coverage will be adequate for the upcoming Plan Year.

  3. Contribution Timeliness – Another item that is required on the Form 5500 is a statement regarding the timeliness of contributions. DOL requirements state that contributions for a large Plan (those with over 100 eligible participants) be remitted to the Plan trust as soon as the amounts can be segregated from company assets. Consistency in deposit timeliness is very important. We recommend you review the procedures in place for payroll processing to ensure you are meeting the DOL requirements.

  4. Review of Plan Loans – Ensure you have reviewed all the participant loans to verify they are current and up to date in repayments. It is a good practice to institute a review of participant 401k activity upon employee termination. This ensures that contributions and loan repayments are up to date and offers you a chance to work with the employee if they have an outstanding loan. Once an employee terminates service with your company, generally a loan becomes a distribution if repayments cannot continue. Informing the outgoing employee of the facts related to this process can help avoid problems.

We recommend you review the Form 5500 for accuracy and completeness prior to submitting it to the EFAST website. Any questions can be directed to your service provider or Plan auditor (if the Plan requires an annual audit). As there are consequences with incorrect information, we strongly encourage taking the time to review the form before it is submitted.

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At Summit CPA we specialize in retirement plan audits. If you would like to discuss our audit process in more detail or need an audit contact our office at (866) 497-9761 to schedule an appointment. We can help you navigate the world of the 401(k) audit as proficiently as possible. We also offer off-site assistance and flat-fee pricing so there are no surprises when the job is complete.

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