IRS Form 5500: What It Is & How To Fill It Out
This article is part of a larger series on Business Financing.
IRS Form 5500 must be filed annually by employers that sponsor retirement plans. Retirement plan sponsors often use third-party administrators to manage compliance and annual reporting. We strongly recommend that Form 5500 be submitted accurately and on time to avoid penalties, audits, or possible plan disqualification.
If you want to work with a 401(k) administrator that assists in managing your compliance paperwork, we recommend ShareBuilder 401k. Their advisors know every detail for keeping your plan in compliance and operating correctly. They’ll administer your 401(k) plan, including preparation of IRS Form 5500, providing you with a signature-ready form each year.
What IRS Form 5500 Is
Form 5500 was developed by the IRS in conjunction with the Department of Labor (DOL). The form is designed to gather detailed information on employer-sponsored retirement plans subject to the Employee Retirement Income Security Act (ERISA). Under ERISA, many types of retirement plans are thoroughly regulated to ensure that employers aren’t violating any laws and are looking out for employees’ best interests. Most plans must file Form 5500 before July 31 each year, although 10-week extensions may be granted.
Information reported on Form 5500 includes:
- Company name
- Employer identification number (EIN)
- Plan sponsor contact information
- Number of active plan participants at the beginning of the plan year
- Number of active participants at the end of the plan year
- Number of former employees with assets in the plan at the end of the plan year
- Type of plan
Who Needs To Complete IRS Form 5500
IRS Form 5500 must be filed for any retirement plan subject to ERISA. 401(k) plans, including those that are a part of a rollover for business startup (ROBS) 401(k) plan, are required to submit this form annually. Other plans that would be subject to Form 5500 requirements include Solo 401(k) plans for accounts of more than $250,000, profit-sharing plans, and many 403(b) plans. Business owners either prepare and submit IRS Form 5500 or hire retirement plan administrators to do so on their behalf.
Whether an employer, also known as a retirement plan sponsor, hires a 401(k) company to administer and prepare Form 5500, it remains their responsibility to ensure that the form is accurate and that it is filed before the deadline. Failure to file Form 5500 can result in substantial monetary penalties and possible plan disqualification.
Additional Form 5500 Schedules
IRS Form 5500 instructions indicate that one or more additional schedules may be required. Those schedules provide detailed financial information about the plan’s operations and finances. The schedules a plan sponsor must file vary based on the type of retirement plan and benefits provided to employees.
Form 5500 instructions may require employers to file additional schedules including:
- Schedule A: Required for plans that offer employee benefits provided by an insurance company
- Schedule H: Filed by welfare benefit or pension benefit plans, including 401(k)s and profit-sharing plans that have 100-plus participants
- Schedule I: Used by welfare benefit plans or pension benefit plans, including 401(k) plans and profit-sharing plans that have 99 participants or fewer
- Schedule R: Filed by defined benefit pension plans
IRS Form 5500 Alternatives
Small businesses that only have one to 100 plan participants can file versions of Form 5500 that are faster and easier to complete. Two IRS Form 5500 alternatives that some businesses are eligible to file instead are:
- IRS Form 5500-EZ: This form is for single-participant plans like the Solo 401(k) plan. Filing is required if the plan has over $250,000 in assets at the end of the year.
- IRS Form 5500-SF: The shorter version of IRS Form 5500 is for plans with fewer than 100 participants that hold no employer stock and invest only in investment products with known values.
Form 5500 Deadline
Most retirement plans must file Form 5500 and necessary attachments annually within eight months of the end of their plan year. For retirement plans that are calendar year plans, their deadline is July 31. According to Form 5500 instructions, plan sponsors must have their Form 5500 and all attachments submitted before their deadline. Plan sponsors unable to meet the Form 5500 deadline can file Form 5558 to request one filing extension of 10 weeks per plan year.
IRS Form 5500 Penalties
If a retirement plan sponsor uses a plan administrator to assist with 401(k) plan compliance—including filing Form 5500—the plan sponsor can still face penalties if the form is inaccurate or filed late. Penalties for failing to file Form 5500 on time include:
- IRS late-filing penalty: $250 per day, maximum of $150,000
- DOL late-filing penalty: Up to $2,259 per day with no maximum
The DOL offers a program for delinquent sponsors who voluntarily self-report themselves to get back into compliance. This program will reduce the DOL’s late-filing penalty; however, it won’t reduce the penalty due to the IRS.
While the IRS and DOL assess penalties for late 5500 filings, they don’t void or disqualify plans as a result of failure to submit these filings. Instead, plans are more often disqualified after employers fail to perform 401(k) nondiscrimination testing, including ADP and ACP Testing.
How To Fill Out Form 5500
To avoid penalties or potential plan disqualification, plan sponsors who choose to submit IRS Form 5500 without the assistance of a plan administrator should follow the IRS’ instructions carefully when preparing and submitting the form. In addition to Form 5500, one or more additional schedules may be necessary, depending on plan type. Plan sponsors who utilize a 401(k) plan administrator can avoid a number of the steps in the process. However, the sponsor will still be responsible for ensuring filings are submitted on time.
The four steps to complete Form 5500 are enter annual report information, complete plan information, identify and complete relevant additional schedules, and sign and submit Form 5500.
1. Enter Annual Report Information
The first step in completing IRS Form 5500 is to enter the Annual Report Identification Information necessary for Part 1. This includes the plan fiscal year covered by the filing, plan type, whether the report is original or amended, whether collective bargaining covers the plan, and if the form is being filed with an extension:
2. Complete Plan Information
As part of Form 5500, information must be submitted on the plan sponsor and any third-party administrator used for the plan, including contact information and employer identification numbers. Part 2 of the form also includes information on the number of participants in a plan plus those separated from employment or deceased.
In addition to information on the number of participants in a plan, Form 5500 instructions require plan sponsors to include information on the characteristics of the plan, including the type of benefits offered through the plan and additional schedules to be filed to detail plan operations and financials.
Part II of IRS Form 5500 requires information about the plan’s financial condition and number of participants.
Depending on the type of retirement plan you offer, you may also need to fill out Part 3 on page 3 of Form 5500. However, according to the instructions on the form, this section is only for use by welfare benefit plans like life, health, and long-term disability plans.
3. Identify & Complete Relevant Additional Schedules
As part of completing IRS Form 5500, you need to select those additional schedules based on the operations of your individual retirement plans and benefits provided to employees. You can refer to the DOL’s instructions for Form 5500 to determine which additional schedules are necessary.
The additional schedules that you’ll need to complete for your 5500 vary based on the type of retirement plan that you offer and the specific retirement benefits that you offer employees. Each schedule is typically several pages, can take between 30 minutes and several hours to complete, and requires detailed financial information, including participant contributions for the preceding year. This part of Form 5500 preparation can be made a lot easier by working with a 401(k) company that can complete these schedules for you.
4. Sign and Submit Form 5500
Once you’ve completed Form 5500 and attached the necessary schedules, sign off on the form. If you use a 401(k) company as a plan administrator, you’ll also need a signature from the administrator before submitting the form.
Plan sponsors must make sure that Form 5500 is submitted on time. Once a plan sponsor or administrator has prepared Form 5500, and it has been signed, the form is submitted online using the EFAST2 system through the DOL’s Employee Benefits Security Administration.
If you’ve hired a 401(k) administrator to assist you, it’s a good idea to understand the filing process since your company is ultimately liable for the form’s accuracy. Note the date of your filing deadline so that you can follow up with your administrator after the end of your plan year. Make sure the administrator has everything they need to prepare Form 5500. Also, review the form for accuracy before it’s submitted.
Common IRS Form 5500 Errors
Entering incorrect information or leaving a field blank when filling out Form 5500 can result in a compliance check or audit of your company’s retirement plan from the DOL. The IRS notes that these are the most common errors:
- Excess deferral: Plan sponsors have allowed contributions to exceed the annual limit that a participant can contribute to their plan.
- Noting zero plan participants: All eligible employees and employees with balances in the plan are considered plan participants. Some newer companies mistakenly answer that there are zero plan participants.
- Fraud: Schedule H asks if a plan had a loss caused by fraud or dishonesty. Some employers answer this question incorrectly. Assuming there’s no fraud, this section should be marked “no” and the amount left blank.
- Plan termination: Form 5500 is required until all assets are distributed from the company’s plan. Common errors include not marking the form as a final return, accidentally marking a plan as terminated when it wasn’t, and not filing the form.
If you need a 401(k) administrator that assists in managing your compliance paperwork, consider ShareBuilder 401k. Their advisors will ensure Form 5500 is filed accurately and on time, minimizing the risk for errors and making sure your plan is in compliance.
IRS Form 5500 must be submitted annually to the DOL to report information on many retirement plans. Plan sponsors that file Form 5500 should follow instructions closely and submit the form before their filing deadline. You should seek out a third-party administrator to assist you with retirement plan compliance, as they will help ensure that your plan is managed smoothly.