The Internal Revenue Service ("IRS") has issued two pieces of guidance that provide relief to retirement plan sponsors and administrators from the penalties that may be assessed under the Internal Revenue Code (the "Code") for delinquent Forms 5500 filings. Plans that fail to timely file Form 5500 series annual reports can be subject to penalties under both Title I of the Employee Retirement Income Security Act ("ERISA") and the Code. IRS penalties for delinquent Forms 5500 filings can reach $15,000 for each late return, plus interest.
The first piece of guidance, Revenue Procedure 2014-32 ("Rev. Proc. 2014-32"), sets forth a temporary pilot program that provides relief from Form 5500 late filing penalties for retirement plans that are ineligible to participate in the DOL's Delinquent Filer Voluntary Compliance Program (the "DFVC Program"). The second piece of guidance, Notice 2014-35, modifies the requirements for retirement plans to qualify for IRS late filing penalty relief by requiring ERISA-covered retirement plans to file Forms 8955-SSA with the IRS in addition to satisfying the requirements of the DFVC Program.
Rev. Proc. 2014-32. Rev. Proc. 2014-32 establishes a temporary one-year pilot program providing relief from Form 5500 late filing penalties to plan administrators and sponsors of retirement plans that are subject to the filing requirements of the Code but not subject to Title I of ERISA. These plans include:
- small business plans that provide benefits only for the owner and the owner's spouse, and plans of business partnerships that cover only partners and their spouses (collectively, "one-participant plans"); and
- certain foreign plans.
NOTE: Relief is not available where the IRS has already issued a CP-283 Notice (Penalty Charge on Your Form 5500 Return) to a plan sponsor or administrator in relation to the delinquent Form 5500.
Under Rev. Proc. 2014-32, the IRS will not impose any penalty for delinquent Forms 5500/5500-EZ filings if the applicant submits a complete Form 5500 series return, including all required schedules and attachments, for each plan year for which the applicant seeks relief. All returns submitted must be sent to the IRS in paper format and cannot be submitted electronically via the DOL's EFAST2 filing system.
Delinquent returns submitted under the pilot program must be marked, in red letters at the top margin of the first page, "Delinquent return submitted under Rev. Proc. 2014-32, Eligible for Penalty Relief." In addition, a completed paper copy of the Transmittal Schedule provided in the Appendix of Rev. Proc. 2014-32 must be attached to the front of each delinquent return.
No penalty or payment is required under the temporary pilot program. However, IRS has indicated that if the temporary program is replaced with a permanent program, a fee or other payment will be required. Delinquent filers can submit an application for penalty relief under the temporary pilot program from June 2, 2014 until June 2, 2015.
Notice 2014-35. Since 2002, IRS has not imposed penalties relating to delinquent Forms 5500 filings where a plan administrator or sponsor has satisfied the requirements of the DOL's DFVC Program. The DOL's DFVC program allows plans that fail to timely file their Forms 5500 to submit the late reports and pay a reduced civil penalty. Retirement plans participate in the DFVC Program by filing an application and submitting the late Forms 5500.
Notice 2014-35 updates the terms for retirement plans covered by Title I of ERISA to obtain relief from IRS penalties for failure to timely comply with the Code's Form 5500 filing requirements. To obtain relief, the delinquent Form 5500/5500-SF must be filed electronically via EFAST2 in accordance with the requirements of the DOL's DFVC Program, and the delinquent Form 8955-SSA must be filed in paper format with the IRS. If these requirements are met, IRS will not impose penalties for untimely filed Forms 5500/5500-SF and 8955-SSA.
NOTE: If a Form 8955-SSA is filed pursuant to Notice 2014-35, the filer must check the box on Line C, Part I (Special extension) on Form 8955-SSA, and enter "DFVC" in the space provided on Line C.
Delinquent Forms 8955-SSA must be filed with the IRS no later than 30 days after completing the DFVC filing for the late Form 5500/5500-SF, or December 1, 2014, whichever is later. This requirement applies to all DFVC filings submitted via EFAST2 (i.e., all DFVC filings after December 31, 2009), regardless of whether the filing was submitted before the release of Notice 2014-35.
NOTE: Form 8955-SSA must be used for years prior to 2009 even though Schedule SSA would have been filed for those years if the filing had been timely submitted to DOL.
For example, if a DFVC filing for a delinquent 2008 Form 5500 was submitted in 2012 and Schedule SSA was never filed for the 2008 plan year, a paper Form 8955-SSA must be filed with IRS for the 2008 plan year no later than December 1, 2014.
Action Steps for Plan Sponsors and Administrators. Plan sponsors and administrators for one-participant plans and foreign plans are advised to confirm that all required Form 5500 filings have been completed. Any outstanding filings discovered should be corrected while the opportunity to do so at no cost exists via the temporary pilot program created by Rev. Proc. 2014-32. Plan sponsors and administrators should also monitor the development of the temporary program to see if it becomes permanent.