By Tara Fenner
In early 2017, we released an article about the filing requirements related to Health and Welfare Plans, a type of employee benefit plan that presents some unique challenges with regard to compliance. In recent years, we have seen an increase in the number of health and welfare plans that are facing compliance issues with regard to delinquent filing of the required tax returns. Although we are capable of working with the plan administrators to bring those plans into compliance and would gladly do so, the best service that we can offer is education on the topic to avoid noncompliance on the front end. We felt this reminder article, along with an internally developed compliance checklist would be beneficial to helping employers navigate through the requirements.
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. General exceptions to this requirement include governmental entities and churches.
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. 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 at the beginning of the plan year 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 and Form 990 filing 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. For any filing failures, the current administrative delinquent filing penalty is $2,097 per day late, with an annual inflation adjustment. 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 for more information about this program.
Additionally, if an employer is determined to be operating a Multiple Employer Welfare Arrangement (MEWA), they are required to complete an electronic M-1 filing with the DOL annually. The M-1 is an informational report due by March 1 each year based on the previous calendar year information. A one-time extension of 60 days will be automatically granted if requested prior to March 1. While there are always exceptions, the general rule for determining the M-1 filing requirement is that the plan includes more than one employer and there is not common ownership among all of the employers in the plan of at least 25%. If a plan is determined to be a MEWA and must file the M-1, it automatically triggers the filing of a Form 5500, even if the plan does not have 100 covered employees at the beginning of the plan year. Currently, penalties can be assessed for delinquent M-1 filings at the rate of $1,527 per day with no option available for reduced penalties for voluntary correction like the Form 5500.
Circumstances regarding the increases in health care coverage options 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 Melissa Steagall-Jones or Tara Fenner at Blackburn, Childers, & Steagall, PLC for assistance. Additionally, the plan’s third party administrator or an ERISA attorney could provide information or a review of the applicable requirements.
Click here and fill out my Health & Welfare Plan Compliance Questionnaire.