The time for filing your organization’s 2021 IRS Form 5500 has arrived. Form 5500 is a necessary annual filing that every retirement plan must complete and can be challenging for plan administrators and employers to fulfill and costly if not completed correctly. In this insight, learn about the new filing requirements, penalties, and updates that administrators and employers need to know.
Delinquent Form 5500 Filings
In the age of COVID and other challenges that businesses experience, delays have become more commonplace than ever, and often, plan administrators and employers find themselves in situations without knowing what to do next.
When an organization realizes that its Form 5500 filing will be delinquent, there is a program set up by the Department of Labor (DOL) called the Delinquent Filer Voluntary Compliance Program, or DFVCP. The program allows plan administrators to pay reduced penalties for voluntarily complying with these annual reporting requirements.
It’s important to note that to be eligible for the DFVCP, the plan administrator cannot have yet been notified in writing by the DOL for failure to file a Form 5500. If you are proactively doing this voluntarily, the fees for the DFVCP for filing those delinquent Form 5500s are capped. The actual fee is $10 a day up to a per filing cap of $2,000 for plans with at least 100 participants and $750 for small plans with less than a hundred participants. There is a per-plan cap of $4,000 for larger plans or $1,500 for small plans.
The DFVCP does not relieve filing penalties that can separately be assessed by the Internal Revenue Service (IRS). However, the IRS generally will waive late filing penalties for Form 5500 filers who satisfy the DFVCP requirements. If companies qualify, the program allows their filing to become current and caps each plan at a specific amount, rather than the IRS and the DOL assessing these penalties separately.
Overview of SAS136 – A New Auditing Standard
Effective January 1, 2022, SAS 136 became the new audit standard for employee benefit plan audits for plan years ending after December 15, 2021. Under SAS 136, auditors will no longer disclaim an opinion but will issue a two-pronged opinion stating that (a) the amounts and disclosures presented in the financial statements that were audited by them are presented fairly, in all material respects, in accordance with generally accepted accounting principles, and (b) and that the information related to assets held by and certified to by a qualifying institution presented in the financial statements agrees to and is derived from, in all material respects, the information covered by an investment certification meeting the requirements of ERISA Section 103(a)(3)(C).
The Form 5500 Schedule H, Part III Accountant’s Opinion has also been updated to reflect the new audit opinion under SAS 136. Auditor’s issuing an opinion for an ERISA 103(a)(3)(C) audit will generally now check box (1) Unmodified on Line 3a, and for Line 3b, they will check box (1) DOL Regulation 2520.103-8.
Increased Form 5500 Penalties
The Form 5500 penalties have once again been increased in 2022. Late filing returns are subject to penalties from the IRS and DOL, with the DOL penalty being $2,259 per day with no maximum. The IRS penalty, which was updated based on the SECURE Act, is $250 per day, up to a maximum penalty of $150,000 per year. Additionally, for Form 8955-SSA, the IRS can assess a separate penalty of $10 per day per late filing participant. If companies discover that they have delinquent filings, it is essential to remember that the DFVCP’s cap on the penalties can save organizations a significant amount of money versus what the IRS and DOL can separately assess.
Increased Contribution Limits for the 2022 Plan Year
The annual updated contribution limits for benefit plans have been released for 2022, with the contribution limit for employees who participate in 401k, 403B, and most 457 plans increased to $20,500. Additionally, employees aged 50 or older can contribute an additional $6,500 as a “catch-up “contribution for a total of $27,000. However, the limits on IRA contributions (both traditional and Roth) remain unchanged for the year at $6,000. The total annual contribution limit (employee and employer contributions combined) for defined contribution plans was increased from $58,000 to $61,000. The actual annual compensation limit for calculating these contributions has been increased from a cap of $285,000 to $305,000. Additionally, the annual benefit and accrual limit increased for defined benefit plans from $230,000 to $245,000.
Form 5500 Filing Considerations and Retirement Plan Updates
Listen in as Donna Nevolo and Israel Tannenbaum review the 5500 filing and deep dive into the changes that plan administrators and employers should be mindful of.
Rev. Proc. 2021-30 Impacts on Plan Sponsors
One avenue for plan sponsors to correct plan operational errors is the Self-Correction Program. Operational errors occur when a plan is not operated in accordance with the terms of the related plan document. Insignificant plan errors can be self-corrected at any time, but significant plan errors can be self-corrected if done so in a timely manner. Rev. Proc. 2021-30 extended the actual correction period for significant failures from the last day of the second plan year until the last day of the third plan year, following the plan year in which the failure occurred. Rev. Proc. 2021-30 also includes an expansion of corrections by plan amendment for operational failures under self-correction, increasing the types of failures for which self-correction could be used. Additionally, there was an expansion of flexibility in how the benefit plans must recoup overpayments, which in the previous year was any amount over $100 and is now any amount for $250. The new principles reduce the need for the benefit plans to seek repayments from participants or beneficiaries who may have, in some cases, received overpayments that they should not have.
Don’t hesitate to get in touch with a team member for more information on Withum’s Employee Benefit Plan Services and Form 5500 filings.