Unless an exception applies, all ERISA-covered benefit plans have to file an annual Form 5500 each year with the DOL and IRS (filed through the DOL’s website). Plan sponsors have the ability to combine their welfare plan filings (e.g., medical, dental, vision, disability, life, etc.) into a single Form 5500. Filing a single form can cut down on time and cost if using a third-party to prepare your Forms. However, many plan sponsors are unaware of what is required before you may technically file a single Form 5500 for your welfare plans.
In order to file a single Form 5500 for multiple plans, the plan sponsor must first “wrap” them into a single ERISA plan. To accomplish this an ERISA wrap plan document must be adopted that outlines each benefit plan that is being wrapped into a single ERISA plan number. An ERISA wrap plan can be very simple and short or they can be longer and more complex as they sometimes also serve as the legal plan document for the underlying benefits, especially in cases where the employer is relying on the insurer’s certificate as the SPD. Often times a self-insured employer will also include its required HIPAA amendment into the wrap plan.
Without an ERISA wrap plan in place, the DOL and IRS could penalize a plan sponsor for failure to file a Form 5500 for all but one of the plans. The penalties for failure to file a Form 5500 are incredibly steep. The DOL can assess a penalty of $2,586 per day (adjusted for inflation each year). Yes, you read that right, I said per day, which equals an annual penalty of $1,042,440. The IRS can also issue a penalty of $250 per day with an annual maximum penalty of $150,000. The good news for plan sponsors is if you catch the late filing prior to the DOL, you can apply to the DOL’s Delinquent Filer Correction Program for a fee that pales in comparison to the potential penalties (ranging from $750 – $4,000 depending on the size of the plan and number of years involved). You can still apply to this program even if you have been contacted by the IRS on the late filing. But once you have been contacted by the DOL, the program is no longer an option.
If you realize you have been filing multiple Forms 5500 without an ERISA wrap plan, please reach out to anyone in our Employee Benefits Group and we can walk you through the best approach to avoid penalties and get an ERISA wrap plan in place.
