Posted by Maria T. Hurd, CPA
Welfare plans such as health, life insurance, dental, vision, short and long term disability plans, are usually a combination of unfunded and fully insured. Unlike retirement plans, small welfare benefit plans do not have a filing requirement if the plan is unfunded, fully insured, or a combination of unfunded and insured. As a result, sponsors of growing plans that reach the 100-participant mark for the first time often miss their filing requirement. Welfare plans cannot use the 80-120 exception to delay the filing of a Form 5500, because this rule is only available to plans that filed a Form 5500 in the previous year. For more details on the application of the 80-120 rule, see our previous blog “I don’t want to grow up, I want to be a small plan.”
Welfare benefit plans that cover 100 or more participants must file a Form 5500. Some welfare benefit providers prepare the Form 5500 for their clients, others just send the required Schedule A attachments. Large plan sponsors who are not aware of the purpose for the Schedule A sometimes file the form away, not realizing that it is an indication that they must file a Form 5500. In most cases, employers who file a large plan Form 5500 for their requirement plan also have a welfare plan filing. The bad news is that electronic filing through EFAST 2 has made it very easy for the Department of Labor (DOL) to locate large plan sponsors who filed a Form 5500 for their retirement plan, but did not do so for their welfare plans.
The good news is that plan administrators who have not been notified in writing by the DOL of their failure to file a timely Form 5500 can file under the DOL’s Delinquent Filer Voluntary Compliance Program (DFVC). Under the DFVC program, the $10/day penalty for late filings, without regard to extensions, is capped at $2,000 per filing and $4,000 per plan for large plans. Although $4,000 could be a substantial penalty amount, it is often much less than the penalty that will be due if the employer doesn’t beat the DOL to it. The DOL’s website has guidance for the completion of a delinquent filing through the DFVC program. Additionally, our next blog entry will expand on the specific rules regarding the filing requirements for welfare plans. With the advent of electronic filing, it doesn’t pay to duck and cover. Sooner or later, the DOL will find your missing Form 5500, so it’s best to race them to the finish and get compliant.