The Employee Plans Compliance Unit (EPCU) found errors in the majority of the final Form 5500-series returns it reviewed. EPCU looked at plan sponsors who filed a Form 5500-series return marked “the final return/report” but listed assets at the end of the plan year to see if they had completed all the steps in terminating their plans.
EPCU designed the Final Return with Assets project to determine:
- whether plan sponsors made an error by marking their Form 5500 as the final return/report,
- why sponsors marked their Form 5500 as the final return/report when the same return listed end of year plan assets, and
- whether there were Form 5500 processing errors that caused the return to show it was a final return/report with end of year assets.
Over 90% of the responses showed sponsors made one or more of the following errors on their Form 5500:
- Filed a Form 5500 marked the final return/report but had assets at the end of the plan year
For the final return/report box to be marked, sponsors must have distributed all plan assets.
- Filed more than one Form 5500 marked the final return/report
Only one Form 5500 should be marked as the final return/report and should be filed for a terminated plan after all plan assets are distributed.
- Distributed all plan assets after the end of the plan year but before filing the Form 5500
For example, a sponsor marked its 2011 Form 5500 as the final return/report for the plan year ending December 31, 2011. However, the plan still had assets on December 31, 2011, which it distributed in 2012 before the filing deadline for the 2011 Form 5500 (July 31, 2012). Even though the plan distributed all plan assets before the due date of its 2011 Form 5500, the distribution was made in the 2012 plan year and not in the 2011 plan year. Therefore, the sponsor shouldn’t have marked its 2011 Form 5500 as the final return/report. Instead, the sponsor should have filed and marked its 2012 Form 5500 as the final return/report.
- Filed a Form 5500 for a Simplified Employee Pension (SEP) plan
Plan sponsors shouldn’t file a Form 5500 for a SEP plan. Instead, the entity that maintains the SEP-IRA files a Form 5498, IRA Contribution Information.
- Filed a Form 5500 for an IRA
Plan sponsors shouldn’t file a Form 5500 for their IRA. Instead, the entity that maintains the IRA files a Form 5498, IRA Contribution Information.
- Didn’t check the “short plan year return/report (less than 12 months)” box
Plan sponsors should mark the short plan year box when filing a return for a period of less than 12 months and show the short plan year dates just above item A in Part I. For example, if the plan assets weren’t distributed until after the end of a plan year in which the plan terminated, then the plan may have a short plan year for the year they’re actually distributed. For a short plan year, the return is due by the last day of the 7th month following the end of the short plan year.
- The plan sponsor didn’t file Form 1099-R for plan distributions.
Plan sponsors must file Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. to report plan distributions. Form 1099-R is generally filed for each person who received $10 or more.
- Three amended Forms 5500-EZ weren’t processed or posted properly to our system.
Review your terminated plan to see if you have finished all the termination steps including filing:
- All current and prior Form 5500 returns
- A final Form 5500 showing zero assets
Final Forms 5500 are required even if you’ve been email us and include “Final Return with Assets” in the subject line. We regret that we cannot answer technical questions unrelated to your compliance check.
- Form 5500 corner
- Form 5500 series and instructions
- Form 5500-EZ and instructions
- Site Index – Information for Retirement Plans