Taking the risk of preparing and filing form 5500 on your own is not worth it! Many 401(k)-related administrative tasks that fall on the business owner or trustee are complex and difficult to navigate, especially the compliance issues governed by ERISA. One of the most important—and most daunting—is the requirement to file the IRS form 5500, an annual report that accounts for the managing of a company’s retirement plan.
Choosing the right Third-Party Administrator (TPA) to handle this filing on your behalf is worth every penny. A good TPA will ensure the form is completed according to requirements, to help you avoid penalty costs and additional work with the IRS, and they will ensure that administrative tasks are done according to the requirements of the plan.
What is Form 5500?
All companies that offer a 401(k) plan are required to file this form with the IRS each year. It serves as both a disclosure document for plan participants and as a compliance tool for the Department of Labor and the Internal Revenue Service. The form requires detailed financial and operational information about the 401(k) plan, including plan assets, participant counts, and adherence to applicable laws and regulations.
How a TPA Supports You
A TPA plays a vital role in managing the administrative and compliance aspects of 401(k) plans. When it comes to form 5500, a knowledgeable TPA will ensure that the filing is done accurately and prior to the deadlines, which are strict. This will prevent unnecessary fines and regulatory inspections. Compliance regulations by ERISA and the IRS change frequently and oftentimes unknowingly by business owners, so having a TPA that is knowledgeable and current on these changes will ensure the filing is compliant.
The main elements of form 5500 is the data that is required to represent the plan year and participation within the 401(k) plan. The collection of the data and financial reporting requires gathering and organizing of this information. TPAs are equipped to manage this so it does not have to be a burden on the business owner. If an audit does arise, having a TPA that can aggregate all plan data in an efficient and accurate manner will assist the company to navigate the process with minimal disruption.
DIY Form Filing
When you choose to file the form yourself, or have a CPA help you, rather than utilizing a TPA, the lack of expertise could put you at risk of serious consequences. Compliance requirements are very stringent, and late or inaccurate filings could result in steep fines and penalties. Penalties can add up very quickly and can cost companies thousands of dollars. There’s also a possibility of audits and legal complications, which are hassles no business needs.
Even without errors, the complexities of form 5500 take time and resources to complete accurately and can result in significant time away from your business.
Work with the Best
To make sure you choose the right TPA for your company’s needs, ask these questions:
Do you prepare and file form 5500 for your clients?
Do you sign the form or is that the responsibility of the business owner?
Having a clear understanding of your role up front will help ensure all tasks are completed. Nobody wants to play a finger pointing game with their CPA or recordkeeper about who was supposed to file it and did not. TPAs are the experts in this area. They have technology at their disposal to collect and report the data in a streamlined fashion. The TPA will provide support based and necessary guidance so the plan remains in compliance on all fronts. Hiring a TPA that handles all of the aspects of administration for your plan will reduce the risk of compliance issues arising.
Making the decision to leverage a strong TPA like 401GO to file the company’s form 5500 is not just a matter of convenience—it’s a critical step toward ensuring compliance, reducing risks, and maintaining an appropriately managed 401(k) plan. By working with a trusted TPA, businesses can stay focused on what they do best while the TPA focuses on 401(k) administration and compliance.
