Instant Analysis: Big Increase in Penalties for Late Plan Returns, Notices

There’s much good for retirement plans and those who work with them in the SECURE Act, but there are a couple of nuggets of “coal” in there as well.

One such provision that retirement plan advisors, administrators and sponsors should be mindful of is a significant increase in the penalties for late filing of retirement plan returns and related notices. These changes are set to take effect in less than two weeks, applying to returns, statements and required notices to be provided after Dec. 31, 2019. The provision is designed to help “offset” the underlying “cost” (to tax revenues) of the legislation – often referred to as “pay fors.” 

The logic behind the increase, according to an earlier House report, is that the penalties for failing to submit these returns and notices have not increased in many years. Congressional tax writers contend that the present law penalties are “too low to discourage noncompliance” and that increasing these penalties “will improve overall tax administration.”

Form 5500

In response, Section 403 of the Setting Every Community Up for Retirement Enhancement (SECURE) Act includes a tenfold increase in the penalty for a failure to file Form 5500 from $25 for each day the failure continues to a maximum penalty of $15,000 to $250 per day up to a maximum of $150,000. 

Form 5500 is, of course, the annual report that employers that maintain a pension, annuity, stock bonus, profit-sharing or other funded deferred compensation plan (or the plan administrator of the plan) are required to file annual returns addressing the qualification, financial condition, funding requirements and operation of the plan. 

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