As labor shortages continue to challenge the industry, more and more contractors are offering new or expanded health and welfare benefits to attract qualified workers. In some cases, making changes to your company’s medical, dental, life insurance, disability, or retirement programs—or adding new participants to such plans—could trigger new Form 5500 reporting requirements. Failure to comply can be costly.

Form 5500 at a Glance
Form 5500 is an information return that must be submitted to the IRS and the U.S. Department of Labor (DOL). The rules surrounding Form 5500 have changed over the years, to the point where many employers may not be aware that they are required to file one or multiple forms for their various welfare and benefit programs.

Generally speaking, any benefit plan with more than 100 eligible participants must file Form 5500, and the plan may also be required to be audited by an independent accounting firm. In addition, all “funded” welfare plans—even those with fewer than 100 participants—also must file the form.

A “funded” plan is one where funds are set aside in a custodial account or trust fund for plan participants. This includes many cafeteria plans and similar programs where employees make contributions to an account that has been established to pay benefits.

Most employer welfare plans are not considered “funded,” however. Some are “unfunded”—that is, benefits are simply paid out of the employer’s general assets. But most are either fully or partially insured.

In most cases, “unfunded” or insured plans with fewer than 100 eligible participants typically are exempt from Form 5500 requirements. But the exemption ceases if the plan grows to more than 100 participants, and there are other reporting requirements and exceptions that can further complicate things—with potentially dire consequences.

The Employer’s Responsibility
Failure to meet the complex filing or audit requirements for Form 5500 can lead to stiff penalties from both the IRS and the DOL. The combined penalties can add up to thousands of dollars per day—with no ceiling or limit in many cases.

While you might expect your insurance company or other benefits provider to monitor these requirements, remember that the responsibility for compliance is the employer’s alone. Plan administrators should take time to review Form 5500 filing and audit requirements and double-check to be sure they are in full compliance.