Welfare Plan missing prepaid legal

[TPApril]

Company has fully insured wrap welfare plan and has consistently filed one 5500 for medical, dental, life, etc. each year. They also have a pre-paid legal services that they were not aware was to be filed as well. They would like to incorporate it into the wrap plan and begin filing moving forward.

Question - what should they do about the past prior to 2012?

Amend for all 12 years they have had it?

Amend past 3 years?

Not amend at all but include moving forward?

[Bill Presson]

You likely have already asked and answered, but just want to make sure: Did they have 100 or more participants in the prepaid legal benefit for all of the years?

[TPApril]

Yes they did. Good question, I should have included that information.

[Bill Presson]

Yes they did. Good question, I should have included that information.

Rats.

Well, the only ethical thing you can recommend is that they amend all the returns. Another option, as you mentioned, is to just add it to the most current filing and move forward. It's not like a return wasn't filed in prior years, it just wasn't as complete as it should have been. So the likely consequence on audit is to add the information and file the amended returns at that time.

If they choose to not amend, you've made your recommendation and can then implement the clients wishes.

[TPApril]

Thanks much. Say they decide not to revisit the past because the administrative costs appear excessive to them, in a worse case scenario where the plan is audited and they then amend all past plans in response, what kind of monetary penalty could they expect?

[Bill Presson]

Someone can correct me if I'm wrong, but I'm not aware of a penalty for filing an amended return.

[Flyboyjohn]

Are you sure the prepaid legal "plan" requires a 5500 filing? Most that I've seen are "employee pay all", no ER involvement beyond collecting and transmitting premiums.

If a 5500 is required it's unlikely the wrap document included the prepaid legal "plan" in prior years so you probably can't use the amended 5500 route but would have to file separately.

[TPApril]

I will confirm. Separately however, you bring up a good point on how to best correctly treat this situation in general for prior years. Sounds like you are suggesting file as its own plan through last overdue year in which case to 'final' it and submit all as DFVC. Then proceed with including it once wrap doc (& spd) are amended. This could get costly.