What is Form 5500?

To understand whether or not your company is required to include an audit with form 5500, it’s crucial to understand what it is. Form 5500 – “Annual Return/Report of Employee Benefit Plan” is an annual report documenting a company’s employee-offered benefit plan to federal agencies. Depending on the size of the company and benefit package type, companies may also be required to include an audit report.

Form 5500 Requirements

Generally, employee benefit plans with 100 or more participants must include an audit report with Form 5500. If your total participant count as of the first day of the plan year is less than 100, you generally don’t need to include an audit report with your Form 5500.

For the plan to be exempt from this requirement, at least 95% of the plan assets must be “qualifying” plan assets. And any person who handles plan assets that don’t constitute qualifying plan assets must be bonded in accordance with ERISA. The amount of the bond may not be less than the value of the qualifying plan assets.

Form 5500 Audit Exceptions

As mentioned, if a plan has 100 or more participants the IRS requires the plan sponsor to file an audit report. But there are some limited exceptions to this requirement.

For example, employee welfare benefit plans that are unfunded, fully insured, or a combination of unfunded and insured don’t have to file an audit report. Employee pension benefit plans that provide benefits exclusively through allocated insurance contracts or policies fully guaranteeing the payment of benefits are also exempt.

Certain welfare benefit plans aren’t required to include an 5500 audit if:

  • Benefits are paid solely from the employer’s general assets,
  • The plan provides benefits exclusively through insurance contracts or through a qualified health maintenance organization (HMO), the premiums of which are paid directly by the employer from its general assets or partly from its general assets and partly from employee contributions, or
  • The plan provides benefits partly from the sponsor’s general assets and partly through insurance contracts or a qualified HMO.

In addition, if one plan year is seven or fewer months, the IRS will defer the audit requirement for the first of two consecutive plan years. However, a financial statement must still be provided. The 5500 audit report for the second year must include an independent qualified public accountant (IQPA) opinion on both the previous short year and the second year.

Know the Rules

Failing to include a required audit report could result in the plan facing a civil suit. Don’t get caught in a sticky situation. Ensure you’re in the right by contacting us for a benefit plan audit, tax and consulting services.


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