Providing an "annual report" on the fiscal health of a benefit plan is one key responsibility and requirement under the Employee Retirement Income Security Act of 1974 (ERISA). This is essentially an annual tax return or financial statement for the benefit plan that is done using Internal Revenue Service (IRS) Form 5500. It is also an area of ERISA where many companies make mistakes and wind up with fines if audited. So, get to know IRS Form 5500 as well as its shadow document, the Summary Annual Report, which is sent to plan participants.
IRS Form 5500 (or the 5500EZ) reflects the number of participants, information about the assets held in trust to fund the plan, liabilities, the money contributed by the employer versus the participants, and the service providers involved with it. Form 5500 and its various attachments are submitted to both the IRS and the Department of Labor (DOL).
Larger companies are typically required to do more than one Form 5500 because they offer more than one "benefit plan." For example, a firm with a full range of benefits might need to do one for its health insurance plan, a dental plan, a disability plan, accidental death and dismemberment, the 401(k), a retirement plan and even executive benefits plans. There are companies with plans that benefit one executive and dependents that need to do a Form 5500 (and Summary Annual Report) for that one plan participant.
"Plan participants" is an important term for the Form 5500. It determines which version of the form to use and the supporting documents needed. Plan participants are not just the current employees who are enrolled; the term also can refer to former employees who have benefits and those active employees who are eligible but do not participate. For a 401(k), for example, it would include all active employees and any former ones who have a balance in the plan.
The number of plan participants is also a threshold used to stipulate which forms are required. Plans with only one participant often need to submit a 5500, but the 100-participant threshold -- a "larger" plan -- adds the requirement of an audited financial report on the plan assets. If the Form 5500 is for a defined benefit plan, an actuarial report signed by an enrolled actuary is needed, too. After all, the whole point of ERISA was originally to make sure retirement plans were secure after some very large ones turned out to be underfunded and retirees were left with nothing.
Form 5500 must be filed by the last day of the seventh month following the plan's year-end. Calendar year plans (those ending on December 31), for example, must file by July 31.
The version of the Form 5500 sent to plan participants is the Summary Annual Report, which is a condensed version with a specific format and an additional section outlining a participant's rights to additional information. It must be distributed by the last day of the ninth month after the year-end.
Completing the Form 5500 can be daunting for many firms. Even if internal personnel exist who are responsible for the task, many company engage outside professionals who are more adept at dealing with the intricacies of ERISA, the 5500 and the Summary Annual Report. Wellspring Insurance Agency has more than 20 years of experience in the employee benefits industry. Visit www.wellspringagency.com or call 940-464-4400 to learn how a Wellspring expert can guide you through the complexities of ERISA regulations.