By Tara Fenner
Given all of the recent changes to healthcare compliance requirements, it is not surprising that keeping up with the newest rules is challenging for some employers. However, we are seeing a rising number of issues with regard to a tax return filing requirement specific to insurance plans that isn’t new. In fact, the Form 5500 filing requirement for employee health and welfare plans has been in place for over 10 years. Form 5500 is an informational return developed by the Department of Labor (DOL), the Internal Revenue Service and the Pension Benefit Guaranty Corporation to collect information about employee benefit plans that are subject to Title I of the Employee Retirement Income Security Act (ERISA). A misconception regarding these returns is that they are only required for defined benefit and defined contribution pension plans. However, ERISA plan coverage also extends this requirement to plans involving medical, dental, life insurance and other types of employee welfare benefits.
The general rule is that an employer with more than 100 covered employees receiving health or other welfare plan benefits at the beginning of the plan year is required to file a Form 5500. Exceptions to this requirement include governmental entities and churches. This participant count of 100 should exclude covered dependents and spouses for purposes of establishing the filing requirement. An additional consideration is that each benefit offered in the plan (medical, dental, vision, etc.) must be combined into a single plan via a wrapper document to enable the filing of a single Form 5500 return. If the benefits are not wrapped into a single plan document, each of the benefits with more than 100 covered employees would qualify as a separate plan and require a separate Form 5500 to be filed. Filing requirements are not dependent on the plan’s funding. This means that a return may be required if the plan is unfunded, fully insured, or a combination of both. If the funding for the plan is administered through a Voluntary Employees’ Beneficiary Association (VEBA) Trust, additional requirements for a plan audit may also apply.
The Form 5500 is required to be filed electronically with the DOL by the end of the seventh month following the plan year end. For 12/31 plan year ends, this would be 7/31. An automatic 2.5 month extension can be requested prior to the original due date each year. Prior to the 2015 Inflation Adjustment Act, the penalty for failing to file a required Form 5500 was $1,100 per day late, with no cap and no limitation of the number of years the DOL can go back to assess penalties. For any filing failures occurring after November 2, 2015, the administrative delinquent filing penalty has been increased to $2,063 per day late, with an annual inflation adjustment thereafter. For an employer with multiple individual benefits required to file, the cost to bring the plans into compliance could be significant.
To provide relief to the plan sponsors that have identified a failure in their filings, the DOL has provided a Delinquent Filer Voluntary Correction Program (DFVCP). This program allows for the plan sponsor to file the delinquent returns with a reduced penalty, but only if the DOL has not notified the plan sponsor of the late filings. Once a plan sponsor has been contacted by the DOL regarding a late or missing Form 5500 filing, this option is no longer available as a correction method. Under the DFVCP, the late filing penalty is reduced to $10 per day late, not to exceed $2,000. If more than one plan year is delinquent, the fee is capped at $4,000 per plan. The DOL has an online tool that is used to calculate the delinquent filing fees. See the DOL’s frequently asked questions for the DFVCP online at for more information about this program.
Circumstances regarding the recent increase in health care coverage for employees have resulted in some employers that may now be over that 100 participant threshold for filing. It may be time for a review of the health and welfare benefits at your company to determine if further reporting is required. The complexities surrounding the administration and compliance for employee benefit plans have created some difficulties in the industry and a need to evaluate each plan on an individual basis for exceptions to the filing and audit requirements. If there are concerns regarding plan compliance, please contact Blackburn, Childers, & Steagall, PLC, the plan’s third party administrator, or an ERISA attorney for a review of the applicable requirements.
Also, as a service to the plan administrators in our region, Blackburn, Childers & Steagall, PLC will be hosting two employee benefit plan seminars in April to provide an overview of general compliance requirements. We will also attempt to address specific questions from the attendees. If interested in participating in one of these seminars, please register below.
Employee Benefit Plan Update – Tuesday, April 18, 2017 – Bank of TN on MedTech in Johnson City
Open to accounting and HR professionals involved with daily operations or governance of employee benefit plans of all sizes. Choice of times, a breakfast session from 8-10 or lunch from 11-1. Up to 2 hours of CPE credit is offered. Click here to register. Cost is $20.