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Red Flag Issues on Your Form 5500

Published by Kim Moore on Jan 2, 2020 6:00:00 AM

If you are the Plan Sponsor for a 401(k) Plan, you should have filed a Form 5500 during the year for your retirement plan. This is a required Internal Revenue Service (IRS) form that includes various information regarding your plan during the previous year. As we get ready to turn the calendar over to 2020 and prepare for a new year of compliance activities, it is a good idea to review some “red flag” areas that the IRS and Department of Labor look for on the Form 5500.  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. What to look for:Red_flag_pin_angled_9655

  1. 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.
  2. 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.
  3. 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 offer 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.

Retirement plans can be very complex. As an innovative firm Summit CPA specializes in 401(k) audits. We have the ability to offer assistance entirely off-site with little or no distraction to your daily office routine.  We also offer flat-fee pricing so there are no surprises on your bill when the job is complete. For assistance contact our office at (866) 497-9761 to schedule an appointment.

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