Form 5500: The Body Language of ERISA Compliance


By Jerry Kalish


Last month, the Department of Labor (DOL), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) released advance copies of the 2020 Form 5500 Series. When filed, they will join those of prior years’ morphing into the body language of ERISA compliance. Here’s how:


How ERISA Compliance is Initiated


EBSA investigations are triggered from three main sources: 1) participant complaints, 2) targeted initiatives, and 3) the subject of this blog post, Form 5500 for which 2010 was the milestone year.


That’s the year in which EFAST2 went online. (My apology. You just can’t talk about ERISA without an acronym coming into the conversation). So here’s the translation, ERISA Filing Acceptance System.


EFAST2 is an electronic filing system through which the Form 5500 series must be filed. It’s funded and managed by the DOL and available to the IRS and the PBGC. It’s called a “system” but in essence, it’s a database. Like any database, it can be accessed by setting up filters.


Here are some of the filters that can pick up the so-called low hanging fruit. Plans that:

  • Have an insufficient fidelity bond or none at all.

  • Had loans in default.

  • Failed to provide any benefit that was due.

  • Had to return excess contributions for failing 401(k) nondiscrimination tests.

  • Did not deposit employee contributions in a timely manner.

  • Failed to include a required plan audit from an independent qualified public accountant, if required.

  • Filed Form 5500 after the due date.

There are also filters that can cut across multiple years and aggregate multiple fields. For example, those plans that have a history of loans in default and late deposit of employee contributions. Add in years in which there hasn’t been a sufficient fidelity bond, and the odds are significantly higher that the plan finds its way into the ERISA compliance process.


How the Compliance Process Works

It may start with a notice from the DOL which will not identify the focus of the investigation. While it may be possible to discern that from the questions in the initial notice, the employer will not know for certain until the process gets started. The initial notice will include a standard, extensive document request and perhaps a non-standard list generated by specific answers on Form 5500 or enforcement initiatives.


The Compliance Scorecard

The Employee Benefits Security Administration (EBSA), is responsible for the reporting, disclosure, and fiduciary requirements for nearly 722,000 retirement plans, approximately 2.5 million health plans, and a similar number of other welfare benefit plans. These plans cover approximately 154 million workers and their dependents and include over $10.7 trillion in assets.


In Fiscal Year (“FY”) 2020, EBSA restored over $3.1 billion in direct payments to plans, participants, and beneficiaries. Over the past four years, EBSA has recovered over $8 billion, increasing its recoveries by 175% from FY 2017 to 2020, and 310% from FY 2016 to FY 2020. Here’s the stat sheet.


The Takeaway


Regardless of whether a non-compliance matter is clearly visible on Form 5500, a compliance review may be prudent. You can use a fiduciary checklist as a starting point. Sometimes what isn’t available is more significant than what is.


Source: National Benefit Services, Inc.

3500 N Rock Road, Bldg 200
Wichita, Kansas 67226
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