Navigating Form 5500 Compliance: Common Pitfalls & How Legal Counsel Can Help

As summer rolls in, so does benefit plan audit season including Form 5500 filings.  For many, this means calls from auditors and sometimes those calls come with unexpected news: “We found an issue.”  If this happens, you’re not alone and it is more common than you might think.  The good news? At BrownWinick, our employee benefits attorneys regularly partner with companies to resolve benefit plan compliance issues efficiently and effectively. 

Form 5500 

Form 5500 is a critical annual filing requirement for employee benefit plans under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code. Yet, many businesses unintentionally expose themselves to steep penalties and regulatory scrutiny due to errors or omissions in the filing process. Common compliance issues include: 

• Incomplete or Inaccurate Plan Information: Plan details such as participation counts, plan characteristics, or funding arrangements are frequently misreported. 
• Late Deferral or Loan Repayment Deposits: Delays in depositing employee deferrals, including loan repayments, violate DOL timing rules and may result in prohibited transactions and required corrective contributions with earnings. 
• Incorrect Allocation Calculations: Improper or inconsistent contributions and allocations can lead to misstatements that raise red flags during audits. 
• Improper Exclusion of Employees: Excusing ineligible employees from participation, without proper plan language or compliance testing, can jeopardize the tax qualification of the benefit plan. 
• Late Filings or Missing Schedules: Failure to meet deadlines or include required schedules (e.g., Schedule C, H, or SSA) triggers automatic penalties. 
• ERISA and IRS Noncompliance: Omissions or errors may signal broader compliance gaps, such as operational failures or prohibited transactions. 

Risks of Non-Compliance 

Non-compliance can lead to: 

• IRS penalties of up to $250 per day, capped at $150,000. 
• DOL penalties exceeding $2,500 per day per benefit plan. 
• Increased likelihood of DOL or IRS audit investigations. 
• Loss of plan qualification, leading to tax consequences for the plan and its participants. 

How Can BrownWinick Assist You? 

Whether you’re a Controller, CFO, HR Professional, or Benefits Specialist, our experienced employee benefits attorneys assist clients in navigating these challenges through comprehensive legal support, including: 

• Audit Review and Compliance Assessment: We review audit reports and filings to identify operational errors, plan document inconsistencies, and compliance gaps. 
• Communication with Auditors and Regulators: We engage with CPAs, DOL agents, and IRS examiners to clarify findings and mitigate exposure. 
• Corrective Action and EPCRS Guidance: Our team structures corrections under the IRS’s Employee Plans Compliance Resolution System (EPCRS), including Voluntary Correction Program (VCP) submissions for more complex issues. 
• Plan Amendments and Documentation: We draft and revise plan documents to ensure compliance with evolving legal standards and correction terms. 
• Defense in DOL and IRS Proceedings: When investigations or audits arise, we represent plan sponsors to protect their interests and negotiate appropriate resolutions. 

If you have concerns with your benefit plans audit findings or issues with your benefit plan’s Form 5500, don’t wait.  Our team is here to support you through audit season and beyond. Download our Form 5500 FAQ here.