Obligation to File Form 5500

By: Colleen Wilson, Paralegal

Many employers are unaware of their obligation to file an annual return (Form 5500) for health and welfare plans. Failure to file a Form 5500 can result in significant penalties that could be imposed by the Internal Revenue Service (“IRS”) of up to $100 per day, and by the Department of Labor (“DOL”) of up to $1,000 per day.

There is often confusion about whether an employer is required to file. An employee welfare plan is subject to the reporting requirements if it is an “employee welfare benefit plan” under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The types of benefits involved include:

· medical, surgical, or hospital care bene fits;

· sickness, accident, or disability benefits;

· unemployment benefits;

· vacation benefits;

· apprenticeship or other training programs;

·scholarship funds;

· day care centers; and

· prepaid legal services.

Certain welfare plans are exempt from the requirement. Exempt plans include:

·plans that covered fewer than 100 participants at the beginning of the year if fully-insured, unfunded or combination of fully-insured and unfunded. A fully-insured plan has its benefits provided exclusively through insurance contracts or policies, the premiums of which must be paid directly by the employer from its general assets or partly from its general assets and employee contributions (which the employer forwards within three months of receipt). A combination unfunded/insured plan has its benefits provided partially as a fully-insured plan and partially as an unfunded plan (for example, a plan that covers unfunded medical benefits and fully-insured life insurance benefits).

·certain apprenticeship or training plans;

·certain daycare plans;

·plans maintained solely to comply with workers compensation, unemployment and disability laws;

·unfunded plans maintained for a select group of highly paid or management employees.

Thus, for example, an employer with a group health plan, whether fully insured or partially unfunded, must file a Form 5500 if the plan benefits more than 100 participants in the first half of the plan year.

Employers who are subject to this requirement must file an annual Form 5500. If past returns were not filed, they should seek the assistance of counsel. The IRS is often willing to waive any possible penalties if the employer can establish reasonable cause for the late-filing. Also, the IRS and DOL established the Delinquent Filer Voluntary Compliance Program “DFVC” which enables employers to file Forms 5500 late while voluntarily paying a reduced sanction.