What are the annual reporting rules?

Unless exempted, an administrator of a welfare benefit plan must file an annual report on Form 5500. This report is filed with the Employee Benefits Security Administration (EBSA), which then transmits the information to the IRS.

Contents. The annual report must include:

• the number of employees covered by the plan;

• the name and address of each fiduciary;

• the name of each person (such as administrators and consultants, and others) who received compensation from the plan during the preceding year for services rendered to the plan or its participants; the amount of compensation; the nature of the services to the plan or its participants; the person's relationship to the employer or employees covered by the plan (or the employee organization); and any other office, position, or employment the person holds with any party in interest;

• an explanation of the reason for any change in appointment of a trustee, accountant, insurance carrier, enrolled actuary, administrator, investment manager, or custodian (notice must be provided to each terminated service provider as well); and

• other financial and actuarial information the Labor Department considers appropriate.

2009 revision. EBSA, the IRS and the PBGC have finalized revisions to the 5500 series for plan year 2009. Information copies of the forms are available at http://www.dol.gov/ebsa . Changes include:

• increased transparency of plan-related fees and expenses;

• a new simplified annual reporting form, Form 5500-SF, for small plans whose assets are held in secure, easy-to-value investments with regulated financial institutions;

• improved financial disclosure by tax-sheltered 403(b) annuity plans subject to Title I of ERISA by making the reporting rules on par with 401(k) plans; and

• incorporation of various technical improvements and clarifications to the form and instructions.

The 2009 series revision also includes annual reporting changes required by the Pension Protection Act of 2006 (PPA) for defined benefit plans and multiemployer plans. Because the PPA required those changes to be implemented for the 2008 plan year, they will be included in the 2008 Form 5500 in a way that allows them to be filed in paper form under the current EFAST form processing system.

When to file. The annual report must be filed with EBSA by the last day of the seventh month after the close of the plan year (i.e., by the end of July for calendar year plans). An extension of time of up to two and a half months may be granted. This extension is applied for on Form 5558.

Electronic filing requirement. Pension and welfare benefit plans will need to file the Form 5500 series electronically, beginning with 2009 plan year filings, due in 2010.

What to file. Form 5500 is used by plans with 100 or more participants for annual reporting purposes and now for plans with fewer than 100 participants.

Exception for small plans. Welfare benefit plans with fewer than 100 employees at the start of the plan year need not file an annual report if:

1. benefits are paid, as needed, solely from the general assets of the employer maintaining the plan;

2. benefits are paid solely through an insurance company or similar organization, such as a health maintenance organization (and premiums have been paid out of the employer's general assets or through employee contributions); or

3. any combination of 1. and 2.

Financial statements. Along with the annual report, the plan administrator of a welfare benefit plan must include an opinion of an independent qualified public accountant; and a financial statement including plan assets and liabilities, changes in fund balance and changes in financial position.

Penalties for failure to file. Both the IRS and the Labor Department can impose penalties for failure to file a required annual return.

IRS penalty. The IRS imposes a $25 per day penalty on a person who fails to file an annual information report, to a maximum of $15,000. The penalty for failure to file the annual report can be avoided by showing that the failure was due to reasonable cause.

DOL penalty. The Labor Department can assess a penalty of up to $1,100 per day for failure to file an annual report. Under an EBSA program called the Delinquent Filer Voluntary Compliance Program, plan administrators who filed late or did not file at all may be eligible to pay reduced civil penalties. Under the program, administrators filing late annual reports can be assessed $50 for each day an annual report is filed after its due date. A daily penalty of $300 (up to a maximum annual penalty of $30,000) can be imposed for failure to file.

The Labor Department is required to take into account the degree and willfulness of the failure to file in determining the amount to be assessed. The penalty is computed from the date of the administrator's failure or refusal to file the annual report and continues up to the date on which an annual report satisfactory to the Labor Department is filed.

If the plan administrator can show reasonable cause for its failure to file the annual report, the Labor Department may waive all or part of the penalty. A plan administrator must receive 30 days' notice to file a statement of reasonable cause for the failure to file a complete annual report or to give a reason why the penalty, as calculated, should not go into effect.