Participant count common trip-up with Form 5500

With the Form 5500 deadline fast approaching, 401(k) plan sponsors should be aware of common mistakes that can easily occur when filing the form.

Different schedules need to be attached to the Form 5500, depending on whether a plan sponsor is a large plan or small plan, says Cindy Dwyer, president of MHM Retirement Plan Solutions, a third-party administrator. Large plans, those with 100 or more eligible participants, must attach a Schedule H to their Form 5500 and the plan must be audited. Small plans, meanwhile, attach a Schedule I.

“If you should be a large plan filer but aren’t filing as one, that is probably a pretty serious mistake,” says Dwyer.

Also see: 5 ways to avoid a DOL audit of your 401(k) plan

It’s especially important for plans hovering around that 100 eligible-participants mark to pay close attention to their plan status, she cautions. Large plans need to be audited every year.

“If you’ve been a small plan filer and you go over 100 [eligible participants] but don’t go over 120, you can still be considered a small plan and not need an audit,” explains Dwyer, adding that the participant count happens on the first day of the plan year. “If on the first day of your plan year, you have 120 people but by the end of the year, you have 2,000 people, it doesn’t matter, you can still file as a small plan.”

Counting participants is an area that can easily trip up 401(k) plan sponsors. All eligible participants must be counted, not just those making a deferral election. “Sometimes you have an employer with 150 employees but only 80 are making eligible deferrals. You really have 150 eligible participants,” says Dwyer. Even former participants in the plan who haven’t taken a distribution are counted as eligible participants. “It gets really tricky,” says Dwyer.

Large plans must also attach a Schedule C, which discloses service provider fees. “It’s a fairly new form and it’s still a challenge sifting through all the data to get the right information for the form,” says Dwyer. “Some providers do a great job and provide concise and clear information for the preparer to put on the form. Other vendors overkill you with information and you have to wade and sift through and figure out what you need to glean to disclose on the Schedule C.”

Also see: 9 important tips for filing a Form 5500

Small plans, meanwhile, may qualify to file a Form 5500-SF, an abbreviated version of the full Form 5500. “You don’t have to attach all the schedules and so you can cut a lot of the time and preparation into completing your 5500 filing,” says Dwyer.

Form 5500s are due July 31 for calendar-year plans, but plan sponsors can file a Form 5558 and be granted an extension until Oct. 15, 2014.

The DOL collects Form 5500 data and uses it in a number of ways, says Andrew Meadows, consumer and brand ambassador at The Online 401(k), including as a disclosure tool, a source of information for other federal agencies, Congress and the private sector, and as a source of information for employees to ensure their employer plans are being operated and managed correctly.