Plan administrators who fail to timely file Form 5500 annual returns/reports are subject to penalties under both Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code (the “Code”). The Department of Labor (the “DOL”) has the authority to assess civil penalties of up to $1,100 per day against plan administrators that fail to file complete and timely returns/reports. In addition, the Internal Revenue Service (the “IRS”) may impose further penalties of $25 per day up to a maximum of $15,000 per return against administrators that fail to file complete and timely returns/reports.

As a means to encourage voluntary compliance with ERISA’s annual reporting requirements, the DOL adopted the Delinquent Filer Voluntary Compliance (“DFVC”) Program. The DFVC Program was adopted by the DOL in 1995 and thereafter was updated in 2002. The DFVC Program allows plan administrators that fail to file timely returns/reports to pay reduced civil penalties. In 2002, the IRS formally embraced the goals of the DFVC Program with the issuance of IRS Notice 2002-23, which stated that the IRS would not impose penalties under the Code on any plan administrator that satisfies the filing requirements of the DFVC Program with respect to a late Form 5500 filing. Accordingly, filing with the DOL under the DFVC Program in effect got plan administrators off the hook both as to the DOL and the IRS—and things were good.

Things are becoming less good. Recently, the DOL updated the procedures for the DFVC Program again. Among other things, the procedures were updated to reflect final regulations from the DOL mandating electronic filing of annual returns/reports. The regulations were part of the overall transition to a wholly electronic ERISA Filing Acceptance System (“EFAST2”). Generally, the regulations became effective for filings made in 2010 and thereafter—and thus first applied to filings with respect to 2009 plan years. Accordingly, under the DFVC Program delinquent annual returns/reports since that time also had to be filed using EFAST2.

When updating the DFVC Program in 2013, the DOL also announced that late filers no longer would be permitted to submit information regarding terminated participants under the DFVC Program (even for 2008 and prior plan years). By way of background, before the 2009 plan year plan administrators had to report information regarding terminated participants on a Schedule SSA to a Form 5500. However, with respect to 2009 plan years and thereafter the IRS replaced Schedule SSA with Form 8955-SSA (“Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits”). Form 8955-SSA is designed to be filed separately with the IRS only.

The DOL’s position that information regarding terminated participants reported contained in Form 8955-SSA (or, for plan years before 2009, Schedule SSA) no longer could be submitted as part of a DFVC Program filing in effect forced the IRS to create a new procedure for obtaining needed relief from the late-filing penalties imposed under the Code. In IRS Notice 2014-32, the IRS acted to do that. Under this new notice, relief from penalties under the Code no longer is available only by completing a DFVC Program filing. A plan administrator that is required to file information regarding terminated participants now must also file a separate filing with the IRS. Notice 2002-23 was superseded by this new notice. Plan administrators will not be happy about this development.

According to the new notice, the IRS will not impose penalties for late filings if the following conditions both are satisfied:

(a) the plan administrator completes the requirements of the DFVC Program with respect to a delinquent report/return for a given year; and

(b) unless already provided to the IRS, the plan administrator files a complete Form 8955-SSA for that year (in the form and within the time prescribed by the notice) by the later of:

(i) 30 calendar days after the filer completes the DFVC Program filing, or

(ii) December 1, 2014.

This new filing requirement applies to all DFVC Program filings submitted under EFAST2 (i.e., generally all such filings on or after January 1, 2010). The fact that this new rule thus has retroactive application will make plan administrators even less happy.

In the category of “you can’t make this up,” a problem created because of a shift to electronic filing obligations can only be resolved by filing a paper copy of the Form 8955-SSA with the IRS. In IRS Notice 2014-32, the IRS explained that systems needed to allow a delinquent Form 8955-SSA to be filed electronically currently are not in place. When a paper copy of Form 8955-SSA is filed under this new rule, the filer must check the box on Line C, Part I (Special extension) of the Form 8955-SSA and enter “DFVC” in the space provided on Line C. Any late filer is not required to file a separate application for relief with the IRS.

So what does all of this mean practically? Here are some of the practical implications:

  • Plan administrators who were not required to file information regarding terminated participants as part of a delinquent annual return/report appear to be unaffected by the new rule.
  • Plan Administrators who already have obtained relief from the DOL penalties under the DFVC Program under EFAST2 (generally, filings made in 2010 and thereafter) and thus reasonably thought their work was done now must file an appropriate Form 8955-SSA in paper form with the IRS no later than December 1, 2014.
    • In some of these instances, it is possible that copies of the Form 8955-SSA already may have been filed with the DOL as part of the DFVC Program. While any such filing is not enough to guarantee IRS relief, it should at least make it easier for this form to be located in files and then submitted to the IRS in paper form.
  • Obviously, any plan administrators seeking to take advantage of the protections of the DFVC Program in the future must be careful to satisfy the separate filing obligation with the IRS, if applicable.