Retirement Plan Sponsors Risk High Penalties with Late Forms
Businesses, already struggling to keep their doors open and bills paid, face hundreds of thousands of dollars in penalties if they delay filing of annual reports for 401(k) plans.
Attorneys and other plan administrators said the DOL and IRS requirements for retirement plans to submit the annual document used for compliance, research, and disclosures, called the Form 5500, is an especially onerous task this year for business owners preoccupied with the coronavirus and a bad economy.
Even without the coronavirus, the Employee Benefits Securities Administration saw an increase of penalties related to reporting compliance between 2018 and 2019. EBSA assessed about $6 million in civil penalties related to reporting compliance issues, according to the agency. That more than doubled in fiscal year 2019, when the agency assessed about $13.6 million in civil penalties.
Late filers counting on a sympathetic agency this year should snap out of that thinking, said Dan Morgan, an attorney focusing on employee benefits and executive compensation with Blank Rome LLP.
“The Department of Labor takes the position that their role is to protect the retirement funds of the American public,” he said. “Are they willing to work with you if it’s resolved early enough? Yes. If you ignore the agency, don’t plan on any sort of relief.”
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Penalties come from both the DOL and the IRS, two agencies that use the information related to the annual reports. The DOL’s penalties go up to $2,233 per day with no maximum. The IRS’s penalties include a $250 a day fine up to $150,000.
“I’ve always felt the penalties were way out of whack. It’s one of those things that makes having a retirement plan complicated. And particularly in this environment, it’s going to sour a lot of people,” said Morgan of Blank Rome.
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“Retirement Plan Sponsors Risk High Penalties with Late Forms,” by Jaclyn Diaz was published in Bloomberg Law on October 7, 2020.