Disqualification for failure to file 5500

[Guest CAM]

Has anyone had a plan disqualified because the Employer failed to file the required 5500 for two years in a row? Also, does anyone know where you can obtain a good indemnification document? I have been asked to prepare the '96 and '97 5500s for this plan and have serious concerns about my liability. Does anyone have any thoughts on the chances that both the IRS and DOL will audit this plan? The Employer claims that they thought the insurance company where the funds were invested was acting as their TPA. Thanks!

[Alonzo]

Unless your Plan has a provision that says that government reporting forms shall be filed in a timely manner (and I have seen plans with this kind of language buried in it -- frequently in the "fiduciary duties" provisions), failure to file the 5500s does not disqualify the plan.

However, the employer is liable for specific penalties related to the failure to file the Form 5500. You may want to check into the Department of Labor's DVFC program, which provides for somewhat reduced penalties. (It is still expensive).

Now, your plan may have other problems that cause a disqualification risk. Plans that miss 5500s also do things like forget to do ADP tests, or ignore 401(a)(17) or 415, or just simply forget to follow the terms of the plan. However, I still don't see why your firm should have liability concerns doing the earlier 5500s based on the fact that you are preparing them late. Do they believe that you had some responsibility for the missed deadlines?

[Guest CAM]

Thanks, Alonzo. No, they do not think we had any responsibility for their failure to file but information for those years is sketchy at best so I am concerned about liability. I had never heard of a plan being subject to disqualification for failure to file returns but this employer appears to have a history of late filings. In reviewing the files for information, I came accross an 1991 IRS notice regarding late filing of the '89 return and it included the statement that the plan was subject to disqualification under ERISA. I've been doing pension administration for quite some time and this was sure news to me. Thanks, again.

[Alonzo]

I have not heard of IRS doing this, and I have dealt with defined benefit pension plans where the employer decided not to file 5500s for over six years. IRS does not currently consider the failure to file a 5500 a "qualification failure"-- this is why you can't correct a failure to file a 5500 through the EPCRS program. Their opinion back in 1991 (before the IRS became kinder and gentler) may have been different.

If information is sketchy from the employer, endeavor to get better information, and document when you can't get the info. In the final analysis, it is the plan sponsor that has to sign the form and certify that the material entered on it is "true and correct."

[Guest CAM]

Thanks again, Alonzo. Your comments about a "kinder, gentler" IRS are duly noted.....And, you are right, it's the Employer signing the form...But, I still would feel better with that indemnification letter. Wow,,,,,6 years???.....Wow!!!!