Form 5500 filing season is upon us. Each July, we receive calls from clients on items that their plan auditors or Form 5500 preparers have detected. One common question that we receive is “What document is our ‘wrap’ document?” This question is one that never used to be asked by the preparers, but now seems to have made it on most of their checklists.
Often times, as an employer gets larger and begins to have a Form 5500 filing requirement for its welfare benefit plans, the employer assumes that they can file a single Form 5500 for their plans. Other times, the accountants preparing the Forms are not very familiar with Form 5500 preparation and they assume that a single Form 5500 can be filed for all of an employer’s welfare benefit plans. However, an employer must take action in order to file a single Form 5500 for multiple plans.
In order qualify for a single filing, an employer must have adopted a document that “wraps” this benefits together. Because benefit professionals are so creative, this document is commonly referred to as an ERISA Wrap Plan. It is a very simple document for counsel to prepare, but without it, your accountant should push back on allowing you to file a single Form 5500. And worse than receiving push back from your accountant would be if you were audited by the DOL and the DOL concluded that your Form 5500 filing only counted for one of your plans and treated you as a delinquent filer for the other plans. The DOL penalty for failing to file a Form 5500 for a plan is $2,097 per day – yes I said per day – that a Form 5500 filing is late. And on top of that, the IRS can also assess a penalty of $25 per day up to a maximum of $15,000 per plan for failing to file a Form 5500 for a plan, because the filing requirement is a joint DOL and IRS requirement.
Since the consequences for failing to file a Form 5500 are so severe, if you are filing a single Form 5500 for multiple plans, we recommend that you dig through your plan files to ensure that you have a proper ERISA wrap plan document. What confuses this issue even more is that the industry is now also calling SPDs that wrap around insurance certificates wrap documents. This SPD wrap-around document likely does not satisfy the requirement to file a single Form 5500. If you are unsure of whether you have the proper documentation, we are happy to review it for you and discuss options to get into compliance if you do not have what you need.