Tips for Preparing Form 5500
At this time of year, many employers and benefit advisors begin preparing Form 5500, the annual report required for most employee benefit plans. Form 5500 must be filed with the federal government within seven months after the end of the plan year. For calendar-year plans, that means the plan’s 2020 Form 5500 is due August 2, 2021 (since July 31 falls on a Saturday this year).
The following are the most frequently asked questions we receive about Form 5500 for employer-sponsored health and welfare plans.
Frequently Asked Questions
Is Form 5500 required for our plan?
Under the Employee Retirement Income Security Act of 1974 (ERISA), Form 5500 must be filed annually for employer-sponsored welfare plans with 100 or more participants as of the beginning of the plan year. To count the number of participants, include covered employees, retirees, and primary COBRA beneficiaries, but do not include dependents.
Welfare plans include plans for medical, dental, vision, life, accident, and disability benefits, as well as health flexible spending accounts (HFSAs) and health reimbursement arrangements (HRAs). If the plan includes group insurance coverage, information about the insurance policy must be reported on Schedule A as part of the Form 5500 filing.
Most welfare plans are unfunded, which means all benefits are paid through group insurance contracts, or directly from the employer’s general assets, or a combination of both. In that case, the filing will be comprised of the three-page Form 5500 only, or the Form 5500 with one or more Schedules A if the plan includes group insurance coverages. No other schedules apply.
On the other hand, if the plan is funded (e.g., a benefits trust), or part of a multiple employer welfare arrangement (MEWA), Form 5500 may be required whether or not there are at least 100 participants. Additional schedules also may be required. Funded plans and MEWAs are uncommon and outside the scope of this article.
The following plans are exempt from ERISA; therefore, Form 5500 does not apply:
- Plans sponsored by governmental employers and certain church plans;
- Most voluntary plans (e.g., employee-pay-all after-tax insurance plans without any employer endorsement, sponsorship or contribution);
- Payroll practices (e.g., unfunded vacation and sick pay); and
- Plans maintained solely to comply with state workers’ compensation, unemployment, and weekly disability insurance laws, without providing additional benefits.
When is Form 5500 due and how is it filed?
Form 5500 and any required schedules must be filed electronically using the Department of Labor (DOL) EFAST2 electronic filing system. Paper filings are no longer accepted. To prepare and file the form and any schedules, you may use approved third-party vendor software or the DOL’s web-based filing system IFILE.
Filing is due within seven months after the end of the plan year. For instance, for calendar-year plans, the due date is July 31 of the following year (or the next business day if July 31 falls on Saturday or Sunday).
Can the due date be extended?
Yes, the filing due date can be extended by up to two and one-half months. To obtain the extension, complete and file Form 5558 Application for Extension of Time no later than the original due date. Form 5558 is simple. Complete Part I to identify the plan. In Part II, do not check the box on line 1 (unless this year will be the first time you are filing a Form 5500 for the plan in question). In line 2, enter a date that is not more than two and one-half months after the original due date for Form 5500. For instance, for a calendar-year plan, the 2020 Form 5500 due date is July 31, 2021 so the latest extension you can request is October 15, 2021. The signature line can be left blank. Submit Form 5558 by U.S. mail or overnight delivery; instructions are included with the form.
In very rare cases, the IRS denies the request. Normally, the IRS does not respond which means the extension is automatically granted. Later on, when filing Form 5500, be sure to check the appropriate box in Part I, D, to indicate that the due date was extended by filing Form 5558.
Part II of Form 5500 asks for basic plan information. Where do we find this information?
Although Form 5500 is prepared and filed many months after the end of the plan year, the plan’s name, plan number, and plan year were designated by the employer when the plan was first established.
ERISA requires that the plan sponsor (employer) set forth the plan in writing and provide a summary plan description (SPD) to plan participants. Those materials must specify the ERISA plan name, plan number, and plan year, along with the plan sponsor’s EIN and other required information. Therefore, the information needed to complete Part II of Form 5500 will be found in the plan document and SPD.
Part III, line 8, asks for codes. What are the correct codes?
For a welfare plan, do not enter any codes on line 8a. Refer to page 20 in Instructions for 2020 Form 5500 for the index of Plan Characteristic Codes, then enter the appropriate code(s) on line 8b. Codes for welfare benefits, including health plans and group life and disability insurance, begin with “4.”
For instance, if Form 5500 is for a welfare plan comprised solely of two medical plans (PPO and HMO), an HFSA, and an HRA, the appropriate code would be 4A (health, other than vision or dental). If the plan also included dental, life insurance, and AD&D, the appropriate codes would be 4A, 4B, 4D and 4L.
Part III, lines 9a and 9b, ask about funding arrangements and benefit arrangements. Please explain.
On both lines, check the box for “Insurance” if the plan includes coverages provided through one or more group insurance policies (e.g., group life, medical, STD, LTD). Check the box for “General assets of the sponsor” if the plan includes any self-funded or uninsured coverages (e.g., HFSA, HRA, or other self-funded health plan). Many employers offer insured plans along with an HFSA, in which case both boxes will be checked.
Do not check the boxes for 412(e)(3) contracts or trusts; these are uncommon arrangements requiring tax professionals or plan trustees to prepare the form.
When is Schedule A required?
Schedule A must be filed with Form 5500 if any plan coverages are provided through group insurance contracts. In that case, the insurance company will provide the employer with information about the policy, and information about any commissions or fees, for use in preparing the schedule. Carriers are required to provide this information within 120 days after the end of the plan year. If the plan includes multiple group policies, such as separate policies for group life, PPO medical, HMO medical, dental, and vision, there will be a separate Schedule A for each one.
The group policy year usually is the same as the ERISA plan year, although that is not required so different dates may apply. Include Schedule A with policy information for the policy year that ends within the plan year. For instance, if the ERISA plan year is January 1 and the group policy year and renewal date is July 1, the 2020 Form 5500 will be filed for period January 1, 2020 through December 31, 2020 and include Schedule(s) A for the policy year July 1, 2019 through June 30, 2020.
Is Schedule C required?
Schedule C does not apply to unfunded welfare plans, which are the vast majority of welfare plans.
Schedule C is required only for certain large welfare plans that are funded through benefit trusts (e.g., a voluntary employees’ beneficiary association (VEBA) or union trust), which is uncommon. In that case, Form 5500 and all required schedules should be prepared by tax professionals or plan trustees.
See the following links for a sample Form 5500 for plan year 2020, instructions for completing the form, and helpful tips from the DOL:
Remember, the actual filing must be completed electronically using the DOL’s EFAST system. Paper filings are not accepted. Lastly, if unable to file Form 5500 on time, complete, print, and mail Form 5558, Application for Extension of Time, for an automatic two and one-half month extension. Form 5558 must be mailed no later than the original due date for Form 5500.