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Noting Increased Penalties, DOL Issues 2016 Form 5500, Schedules, and Instructions
Practical Law Legal Update w-004-3748 (Approx. 5 pages)
Noting Increased Penalties, DOL Issues 2016 Form 5500, Schedules, and Instructions
by Practical Law Employee Benefits & Executive Compensation
| Published on 04 Nov 2016 • USA (National/Federal) |
The Department of Labor (DOL), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) released advance informational copies of the 2016 Form 5500 annual report and related instructions.
On November 1, 2016, the DOL, IRS, and PBGC issued advance informational copies of the 2016 Form 5500, schedules, and related instructions. The 2016 Form 5500 will be filed for plan years that begin in 2016. The advance 2016 Form 5500 is for informational purposes only and cannot be used to file Form 5500 (which must be submitted electronically).
Form 5500 Instructions Reflect Increased Civil Money Penalties
The instructions for the advance 2016 Form 5500 reflect the increased maximum civil penalties that may be assessed under ERISA Section 502(c)(2), as amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, and the DOL's implementing regulations (81 Fed. Reg. 43430 (July 1, 2016)) (see Legal Update, DOL Increases Civil Money Penalties, Effective August 1).
The new maximum penalty for a plan administrator who fails or refuses to file a complete or accurate Form 5500 has been increased from $1,100 to $2,063 per day. The increased penalty amount applies to civil penalties assessed after August 1, 2016, for violations that occurred after November 2, 2015 (that is, the enactment date of the Inflation Adjustment Act).
The DOL notes in the instructions that:
- It will adjust the new ERISA Title I penalty amounts annually for inflation by January 15 of each year.
- Any changes to the ERISA Title I penalty amounts will be posted on the website of the DOL's Employee Benefits Security Administration (EBSA).
Although the instructions have adjusted the penalty for failing to file a report:
- The penalty for not filing returns for certain deferred compensation plans, trusts and annuities, and bond purchase plans by the due date remains unchanged at $25 a day (26 U.S.C. § 6602(e)).
- The penalty for each failure to file an actuarial statement (Schedule MB (Form 5500) or Schedule SB (Form 5500)) required by the applicable instructions remains unchanged at $1,000 (26 U.S.C. § 6692).
On another penalty issue, the instructions state that filers who wish to participate in the DFVC Program for plan years prior to 2013 must use the 2016 version of Form 5500 or, if applicable, Form 5500-SF.
Changes Affecting Form 5500 Schedules
The 2016 Form 5500 instructions also highlight several changes affecting the 2016 Form 5500 schedules:
- Line 5c in Schedule H and Schedule I was amended to include a question that asks filers to enter the My PAA-generated confirmation number for the PBGC premium filing for the plan year. This only applies to plans that are defined benefit plans covered by the PBGC insurance program.
- The instructions for Cooperative and Small Employer Charity (CSEC) plans were amended to reflect guidance on certain issues relating to the application of the Cooperative and Small Employer Charity Pension Flexibility Act (Pub. L. No. 113-97). CSEC plans are reported on Line 27, Code 1, of Schedule SB.
Compliance Questions
The Form 5500 instructions also identify several questions (which are also discussed on a separate IRS page) on the Form 5500 and the schedules that are not required to be answered and which filers should skip. Specifically, for the 2016 plan year, plan sponsors should not:
- Enter the preparer's information at the bottom of page one of the Form 5500.
- Enter the preparer's information at the bottom of page one of Form 5500-SF, as well as Lines 14a-d in Part VIII (Trust Information) and Lines 15a-b, 16a-b, 17a-b, 18, and 19 in Part IX (IRS Compliance Questions) of that Form.
- Enter the preparer's information at the bottom of page two of Form 5500-EZ, as well as Lines 4a-d, 13a-b, 14, and 15 of that Form.
- Complete questions on Schedules H and I, Line 4o, and Lines 6a through 6d.
- Complete questions on Schedule R, Part VII (IRS Compliance Questions).
Practical Implications
Filers of Form 5500 should be aware of the changes made to the 2016 Form 5500 and its accompanying schedules and instructions. One of the more notable changes, as reflected in the instructions for 2016 plan year reporting, is the increased maximum penalty amount, which is nearly double the old per-day amount and ups the stakes for Form 5500 noncompliance.
For a discussion of proposed changes to Form 5500, which would apply for plan years beginning on or after January 1, 2019, see Legal Update, Proposed Changes to Form 5500 and Schedules Would Expand Benefit Plan Reporting.