Insights

Beware of the IRS and DOL: Four Red Flags They Seek on Form 5500

The Form 5500 is an ERISA requirement for retirement plans to report and disclose operating procedures. Advisors use this to confirm that plans are managed according to ERISA standards. The form also allows individuals access to information, protecting the rights and benefits of the plan participants and beneficiaries covered under the plan.

Make sure you are compliant. Be aware of red flags that the IRS and DOL look for on Form 5500 filings:

  1. 1. Not making participant deferral remittances “as soon as administratively possible” is considered a fiduciary breach and can make the plan subject to penalties and potentially disqualification. Delinquent remittances are considered to be loans of plan assets to the sponsoring company.
  2. 2. An ERISA fidelity bond (not to be confused with fiduciary insurance) is a requirement. This bond protects participant assets from being mishandled, and every person who may handle plan assets or deferrals must be covered.
  3. 3. Loans in default for participants not continuing loan repayments, or loans that are 90 days in arrears, are a fiduciary breach that can make the plan subject to penalties and disqualification.
  4. 4. Corrective distributions, return of excess deferrals and excess contributions, along with any gains attributed must be distributed in a timely manner (typically two and a half months after the plan year ends). In some cases these fiduciary breaches can be self-corrected if done within the same plan year in which they occurred, and may be considered additional breaches if they extend beyond the current plan year.

This is a partial, not exhaustive list of common Form 5500 red flags. If you’re concerned about ERISA compliance, contact your advisor sooner, rather than later.

For more background on Form 5500, visit the Society for Human Resource Management online. See “Regulatory 5500: What is Form 5500, and where are instructions for completing it?”

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Investment advisory and asset management services are offered by investment adviser representatives (IARs) through Burnham Gibson Wealth Advisors, Inc. (Burnham Gibson), a registered investment adviser. Burnham Gibson IARs are also, separately and apart from Burnham Gibson, registered representatives who offer securities through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC, as well as agents who offer insurance and annuity products through AXA Network, LLC, which conducts business as AXA Network Insurance Agency of California, LLC in California, and as AXA Network Insurance Agency of Utah, LLC in Utah. Please note that any Burnham Gibson IAR holding the QKA (Qualified 401(k) Plan Administrator) and/or the CPFA (Certified Plan Fiduciary Advisor) professional designation does so only in his or her capacity as an investment advisory representative with Burnham Gibson and entirely outside of AXA Advisors and AXA Network. Neither designation reflects any AXA Advisors/AXA Network investment advisory or other service or product offering. AXA Advisors and AXA Network do not provide ERISA fiduciary, tax or legal advice and are not affiliates of Burnham Gibson. Individuals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified.

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Please note that although Burnham Gibson Wealth Advisors, Inc. is  a “registered investment adviser”, readers should be aware that registration with the SEC or any state securities authority does not imply a certain level of skill or training. Additional information about the Adviser is available on the SEC’s website at www.adviserinfo.sec.gov.

BGWA.2018.51
PPG 138586 (8/18) (Exp 8/20)