Since 1975, the Form 5500 Series has served as a tool for employee benefit plans to meet annual reporting obligations. It’s essentially the public face of your plan and where transparency and accuracy reign supreme.
While minor mistakes – like omitted lines, incorrect EINs, or noting zero plan participants – can catch the attention of the Department of Labor (DOL), specific actions act as major red flags, practically inviting thorough DOL scrutiny.
Here are the four audit triggers you should avoid:
Commissions to PEO-owned or Association-owned insurance agencies on Schedule A.
Many Professional Employer Organizations (PEOs) have ownership stakes in their insurance agencies. Although this move might appear strategic for boosting profits and extending employee coverage, it can pose complications within Employee Retirement Income Security Act (ERISA) regulations. ERISA has stringent guidelines regarding “parties in interest.”
Schedule C service providers who are non-independent.
Schedule C details service providers used, with fees exceeding $5,000. While transactions with external service providers are allowed, mainly when their expertise improves plan efficacy, Schedule C only permits listing independent service providers outside your organization. You cannot list internal individuals with vested interests.
Inconsistencies in responses concerning parties-in-interest.
One thing that stands out in Form 5500 is the repetitiveness of the questions. It’s deliberate, reflecting the DOL’s emphasis on consistency in your responses. Don’t fall into the trap of assuming each question should have a distinct answer. The DOL is looking for uniformity, and divergent responses can trigger audits.
Inability to pay due benefits.
A glaring sign of a plan in trouble is the inability to fulfill due benefits. If your completed Form 5500 reveals your plan could not pay certain benefits to participants, do not manipulate the numbers or omit information. Instead, seek advice from an ERISA Independent Fiduciary or legal counsel immediately.
Your Form 5500 reflects your adeptness in managing your organization’s employee benefits and retirement plan. Do you need more insights on how to keep your plan compliant?
Boris Benic and Associates understands the complexities of employee benefits plans. Our employee benefits team offers invaluable advice and guidance to ensure your company’s plan remains financially healthy. If you are looking for value, personal service and incomparable expertise, schedule a consultation today.