Most of us are aware of the 5500 filing requirements for companies with 100 or more employees covered on their health and welfare plans. Might there be service differentiator and prospecting opportunities available if we have a thorough understanding of the mechanics of the 5500 process?
Let’s first review the basic 5500 regulations:
Who must file? Companies with 100 or more employees during the previous fiscal year.
When must they file? The last day of the 7th month following the end of the plan year plus any extensions.
How do they file? Electronically through the Labor Department’s IFILE report preparation or EFAST2.
Penalties for noncompliance: Under ERISA Section 502, the DOL may assess a civil penalty up to $1,100 per day. The DOL maintains two programs that can reduce the penalties to less than the full statutory amount.
The first is the Late Filer Enforcement Program. Plan administrators may be fined $50 per day for each day after the required due date. The second is the Non-Filer Enforcement Program. Under this program plan administrators may be fined $300 per day or $30,000 per year. These two programs apply when the DOL identifies a late or non-filer. Criminal penalties are also possible, which could include up to 10 years in prison and a fine not to exceed $100,000 for an individual and $500,000 for a corporation.
Delinquent Filer Voluntary Compliance DFVC: This is designed for employers that voluntarily correct their 5500 deficiencies. Under this program the maximum fine is $750 for a small plan and $2,000 for a large plan with a multi-year cap of $1,500 and $4,000, respectively.
The last available DOL accounting indicated that there were 2,900 annual delinquent filings with $9 million in penalties levied. This reporting was done several years ago. Do you think enforcement will increase or decrease over the next few years?
What are your 5500 responsibilities to your clients with 100 lives or more? I would submit that you have several options:
- Do nothing and leave yourself vulnerable to competition.
- Make sure your clients understand their legal responsibility for 5500 submission.
- Provide 5500 completion for your clients on an insource or outsource basis.
What are the prospecting opportunities utilizing your 5500 knowledge?
- When meeting with a prospective client, determine their 5500 process. If their current adviser is not assuming this responsibility, perhaps you can.
- Prior to each initial prospect meeting with a 100-plus life case, run the 5500. There are a variety of free and subscription services that will provide this public information. You will learn who the incumbent broker is, the lines of coverages and carriers, the annual premiums, commissions and fees earned. You may also learn that your prospect did not file their 5500 and you can have a discussion about the DFVC. Over the past four years we have added three new 100-plus life clients because we brought to their attention their failure to file their 5500. In all cases this resulted from working with a smaller broker that had no knowledge of 5500 filings and probably had no other clients with more than 100 employees.
Having 5500 knowledge gives you power in the marketplace. Please use the information to better serve your existing clients and bring on new clients that are being underserved.
Torelli, CLU, ChFC, MSFS is president of Newport Beach, Calif.-based e3 Financial.
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