It happens several times a year. We get a call from a business owner or a financial professional asking what the options are for someone who was unaware of the filing requirements for their retirement plan. Civil penalties of up to $1,025 per day up to a maximum of $15,000 may be imposed on companies who fail to file their annual Form 5500 filing by its due date. Yes, that stings!
Luckily there are programs available to be able to submit filings late with a significantly-reduced late filing penalty fee. The Delinquent Filer Voluntary Compliance (DFVC) program will allow a late submission for a reduced rate of $750 per year for plans with fewer than 100 participants.
Now even more relief is available for owner-only plans. On June 2, 2014 the IRS announced a Penalty Relief Program for late filing of Forms 5500-EZ. This is a temporary pilot program that offers a 12 month window in which to file a Form 5500-EZ without penalty.
Form 5500-EZ may be filed by plans that cover:
- A single business owner
- A business owner and his/her spouse
- A business owner, one or more business partners and their spouses
Once any employees of the company other than the owner, partner or spouse become eligible for the plan, the plan is no longer eligible to file a Form 5500-EZ.
To submit a filing under this Penalty Relief Program, the following steps are to be taken:
- Complete the appropriate Form 5500 filing for each plan year including any required Schedules or attachments. Certain small plans may have been required to submit a Form 5500 instead of a Form 5500-EZ;
- Filings are to be submitted on paper to the IRS, not through the Department of Labor (DOL) electronic filing system;
- Mark in red letters at the top of each filing “Delinquent return submitted under Rev. Proc. 2014-32, Eligible for Penalty Relief.”
- Attach to the front of each delinquent filing a special Transmittal Schedule. This schedule is like a cover letter that includes basic information about the plan.
Multiple filings may be submitted in one package. For example, if you had both a Money Purchase Plan and a Profit Sharing plan that has delinquent filings for three years, you can submit six separate filings at one time (three each for the two plans).
The submissions should be mailed to the IRS. There are two different addresses depending on whether the submission includes Form(s) 5500-EZ or Form(s) 5500.
Since this program is only scheduled to be online for one year, we recommend that you submit well in advance of the expiration date of June 2, 2015. If you have already received a notice from the IRS that levies a penalty for late filing (CP 283 Notice) then you will not be eligible to submit under this pilot program, but you may still be eligible to submit under the DFVC program.
Here is some more information about the IRS Penalty Relief Program. You may also be interested in our blog post on Fixing Common Retirement Plan Problems.
We enjoy being able to help people out of a potentially expensive problem when it comes to their retirement plan. At Benefit Resources we have been keeping our clients in compliance for 27 years now. We would love to be able to help you too. Request here that we contact you. It will cost you nothing, and it may save you thousands of dollars!