No 5500 filed since plan inception

[Moe Howard]

In 1996 a small employer (actually he's not short ... he's about 6' 2') .... told his personal life insurance agent that he wanted to establish a retirement plan for his employees. The insurance agent, who of course knew nothing about rertirement plans, immediately smelled a commission. And before the small employer could say "who's looking out for me" ... the agent had hooked him up with an insurance company's prototype plan.

The agent loaded him down with all kind of forms to fill out, gave the employer the 800-phone number of the insurance company's customer service department ( located 2000 miles away) and then ran home and waited for his commission check to arive in the mail.

The insurance company was completely automated so the employer delat with them via phone and by visiting their website. Sometimes the would call the ins agent and ask him to explain things like .... "Buba quit yesterday and his wife is down here at the shop wanting to know about Buba's retirement plan .... what should I tell her?"

To make a long story short, the insurance company has performed all IRS & DOL compliance requirements for the plan except two things 1) no discrimination testing & 2) no 5500 preparation.

At the present time, the IRS & DOL do not know that the plan exists, because a 5500 has never been filed (not ever).

The lady, who prepares the employer's corp tax return , recently went to a tax seminar and accidently learned that a 5500 is required. Neither the employer nor ins agent knew what a 5500 was (although this 401k plan has existed for the past 12 years). The employer has contacted me (an outside accountant and preparer of small 5500's) to determine what needs to be done regarding 12 years of delinquent 5500s. I was recently told by the insurance company that ... the insurance company does not prepare 5500s and that the employer should have hired a TPA firm 12 years ago.

By the way, the insurance company does not have much in the way of plan records prior to 2004.

I'll bet all hell is going to break loose when IRS & DOL receives the 2007 Form 5500 that I just prepared that has a plan effective date of 01/01/96. No records exist prior to 2004 to prepare 5500 for plan years 1996- 2003.

Any suggestions on how to deal with penalty notices that are sure to come ?

[Bill Presson]

In 1996 a small employer (actually he's not short ... he's about 6' 2') .... told his personal life insurance agent that he wanted to establish a retirement plan for his employees. The insurance agent, who of course knew nothing about rertirement plans, immediately smelled a commission. And before the small employer could say "who's looking out for me" ... the agent had hooked him up with an insurance company's prototype plan.

The agent loaded him down with all kind of forms to fill out, gave the employer the 800-phone number of the insurance company's customer service department ( located 2000 miles away) and then ran home and waited for his commission check to arive in the mail.

The insurance company was completely automated so the employer delat with them via phone and by visiting their website. Sometimes the would call the ins agent and ask him to explain things like .... "Buba quit yesterday and his wife is down here at the shop wanting to know about Buba's retirement plan .... what should I tell her?"

To make a long story short, the insurance company has performed all IRS & DOL compliance requirements for the plan except two things 1) no discrimination testing & 2) no 5500 preparation.

At the present time, the IRS & DOL do not know that the plan exists, because a 5500 has never been filed (not ever).

The lady, who prepares the employer's corp tax return , recently went to a tax seminar and accidently learned that a 5500 is required. Neither the employer nor ins agent knew what a 5500 was (although this 401k plan has existed for the past 12 years). The employer has contacted me (an outside accountant and preparer of small 5500's) to determine what needs to be done regarding 12 years of delinquent 5500s. I was recently told by the insurance company that ... the insurance company does not prepare 5500s and that the employer should have hired a TPA firm 12 years ago.

By the way, the insurance company does not have much in the way of plan records prior to 2004.

I'll bet all hell is going to break loose when IRS & DOL receives the 2007 Form 5500 that I just prepared that has a plan effective date of 01/01/96. No records exist prior to 2004 to prepare 5500 for plan years 1996- 2003.

Any suggestions on how to deal with penalty notices that are sure to come ?

I'd make Shemp do it.

hahahaha

Seriously, though. Is there any kind of contract between the employer and the ins co? That might spell out who is responsible for what. If you can do a DFVC filing, I believe $1,500 would be the total penalty because it's capped at two years, no matter how many you file. I don't remember what the DFVC program says about 5500's that far back, but you (the ER) definitely needs to use it.

[AKconsult]

Yikes - I have almost the exact same issue. In my case, the employer started a plan in 1998, made profit sharing contributions to his employees into their various investments (they were all investing in their own brokerage accounts) and has never prepared a 5500 filing.

[J Simmons]

Gathering the info all the way back to 1998 and preparing now 10 late Forms 5500 is not only a difficult one, but could span quite some time. I'm wondering if there is a preliminary notification one can make under DFVC to put DoL on notice that such are being worked and will be filed, so that in the interim there is no audit/penalty exposure.

[Guest Sieve]

I just filed (a month ago) about 10 never-filed Forms 5500 from the establishment of the plan (penalty, of course, just $1,500), but there were records available from which to complete the Forms 5500 accurately. It took the accountants about 3-4 weeks.

First, you need to yell at the insurance company, at a minimum, because they ought to have been holding records for at least 6 years, and read them the riot act so that they somehow can come up with records. The DOL/IRS probably will not send a notice for a while (assuming you filed near the 10/15 extended deadline)--I would suspect not for at least 6-8 months (but don't assume it will take that long)--so you have some time. Unless you file all missing years, however, you will have a problem, so if there is absolutely no way the recrods can be found then you should file all that you can and hope that the IRS/DOL will limit or eliminate the penalties, based on your hearts-and-flowers explanation, when they ask for eaerlier 5500s.

You can't put the DOL on notice that you will file delinquent 5500s when you can, and get out of a penatly, or stay under DFVC, in that way. Only a DOL notice eliminates your ability to go in under DFVC, and only to the extent fo the notice--so, the good news (if there is any) is that you can still go in under DFVC even after the IRS hits you with a penalty.

[Guest KWebb]

In 2006 we received the following information after contacting the DOL's Office of the Chief Accountant and being transferred to one of their DFVC Coordinators:

1) First three prior plan years - Prepare a complete Form 5500 for the last three plan years.

2) Plan years before the last three plan years - Prepare just the basic plan data on the Form 5500. No other schedules are required for the filings before the prior three.

3) Include a letter - Explain why they haven't filed in the past. They should also explain what is included in the submission. The prior three years filings include all information and schedules. Filings prior to the last three only have plan data.

4) Mail all filings together.

5) Most importantly, follow the DFVC procedures to calculate the DFVC fee and include a check for the amount of all the miss filings.

Can anyone confirm if this has changed?