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Beware Of The Department Of Labor's New Procedures

USA
6 Jun 2011

The Department of Labor has launched a new programme to determine whether companies are complying with the Form 5500 and associated audit report requirements in a timely way. The recent electronic filing requirement has enabled the DOL to issue delinquency notices and assess penalties more efficiently than in the past. Taxand US discusses the new procedures and the implications.


Previously the time required by the DOL to process, evaluate and validate newly filed returns was extensive. It was not uncommon for the DOL to take three months to finish processing a return. If the return being processed was timely filed but deficient, the DOL generally sent a notice giving the plan sponsor 30 days to correct the deficiency. If the deficiency was corrected within 30 days, the DOL would treat the perfected return as timely filed, thus allowing the plan sponsor to avoid late filing penalties. If the deficiency was not remedied within 30 days, the DOL could reject the return as incomplete. More often, the DOL would send out a second 30-day letter giving the plan sponsor 30 more days to correct the deficiency (and avoid penalties). This lengthy process provided plan sponsors with an informal time "buffer" to perfect a timely filed but deficient Form 5500 without the imposition of late filing penalties. This process was fairly forgiving and enabled plan sponsors who were trying to "do the right thing" avoid costly late filing penalties.

Now with the electronic filing technology fully integrated into the DOL's 2010 Form 5500 filing system, all filings are immediately screened electronically. Therefore, the informal time "buffer" has been eliminated, and late filed or incomplete returns will generate rejection or penalty notices immediately. In addition, although the DOL will send out a 45-day letter asking the plan sponsor to correct deficiencies, depending on the type of deficiency, the DOL will impose some or all of the late filing penalties even if the incomplete return is perfected within the 45-day period. Specifically, if the DOL receives a timely filed Form 5500 without the required independent auditor's report, the DOL will impose some or all of the late filing penalties even if the independent auditor's report is provided within the 45-day period.

Taxand's Take


To prevent falling foul of the new DOL penalty procedures it's important to take note of the following:
  • Open communications between your human resource department and tax department, to ensure a employee benefit plan does not slip through the cracks of the Form 5500 filing requirements.
  • Review outstanding employee benefit plans -- especially if your company is experiencing either fast growth or high turnover.
  • To avoid being caught in a duel with the DOL and/or IRS, we recommend taking advantage of the DOL's DFVCP upon the discovery of a late filed or incomplete Form 5500 filing.


Finally, if your company does receive a DOL notice of any kind, it is extremely important that you begin immediate communications with the DOL.

Read the full article on the new DOL procedures from Taxand US here

Your Taxand contact for further queries is:
Mark Spittell
T. +1 214 438 1017
E. mspittell@alvarezandmarsal.com

Taxand's Take Author