Note to Gusto 401(k) conversion customers: If Gusto Retirement is your 401(k) administrator, we'll take care of preparing your plan's Form 5500 if your plan started with Gusto Retirement and has had contributions in that calendar year, as well as all future years. Our Customer Success team will reach out if we need any additional information from you.
Offering your employees a 401(k) is one thing. But you'll also have to submit annual reports to the federal government. Enter the Form 5500, an annual report required by the federal government about employee benefits plans. There's a lot that goes into completing the Form 5500, with its 27 pages of instructions. This is why so many employers rely on their 401(k) plan administrator to get the job done on time.¹
Counting Participants
Determining how many “participants” are in your plan is one of the first steps you need to do. This will determine both the type of Form 5500 that must be completed as well as if a formal audit will need to be completed. The rules around who is a participant for Form 5500 purposes have changed recently (plan years beginning on or after January 1, 2023). For Form 5500 purposes, a participant is any individual — active or former employee or beneficiary — that had an account balance on the first day of the plan year (last day of the year for a new plan). Prior to this change active employees who were eligible for the plan but did not have an account balance were counted. This change dropped the participant count for many plans.
Three versions of the Form 5500
There are three versions of the Form 5500: the regular Form 5500, the Form 5500-SF, and the Form 5500-EZ.
In general, if you have fewer than 100 participants, you're eligible to complete a shorter version: the Form 5500-SF. If you have a Solo 401(k) (or otherwise qualify as an owner-only plan) with $250,000 or more in assets, you'll need to file the even shorter (and aptly-named) Form 5500-EZ. Solo 401(k) plans with less than $250,000 in assets at plan year end are exempt from filing altogether. This is also the form you'd use if your plan is based outside of the U.S. or used primarily by non-resident aliens. Otherwise, you'll need to file the regular Form 5500.1
Large plans vs small plans
In general, for plan years in which a plan has fewer than 100 participants, the plan files Form 5500-SF along with various schedules attached ("schedule" is just a term for additional forms that collect more information). Such a plan is entitled to the "small plan exception," where it does not have to submit an audited financial report of the plan assets.
For plan years in which a plan has at least 100 participants, often referred to as a "large plan," the plan does not qualify for the "small plan exception" and must file the full Form 5500 with various schedules and also an audited financial report of the plan assets.
What is the 80-120 rule?
To reduce the frequency with which 401(k) plans transition back and forth between small plan and large plan status, the DOL established the 80-120 rule. Under this rule, "small plans" do not automatically become large plans in the first plan year with at least 100 participants. Instead, they transition to large plan status in the first plan year that they have more than 120 participants. For future plan years, the plan retains its large plan status as long as it has at least 100 participants.
Similarly, a large plan does not lose its large plan status in the first plan year that the number of participants drops below 100. Rather, a large plan changes to small plan status in the first plan year that the number of participants falls below 80. And for future plan years, the plan retains its small plan status as long as it has fewer than 100 participants.
What's included in the Form 5500?
The 3 pages of the Form 5500 and Form 5500-SF ask for basic information about your business, your plans, number of 401(k) participants, and other details you'd expect to see. More granular details are reported on the additional schedules that need to be attached, which is determined by the benefits the plan offers and the number of participants.
Below, you'll find a list of schedules and their respective scopes for Form 5500 SF vs Form 5500.
Form 5500 schedules
Schedule | Focus area | Form 5500 SF | Form 5500
|
A | Insurance Information | Required sometimes* | Required sometimes* |
C | Service Provider Information | Not Required | Required if you paid a service provider over $5,000 that plan year |
D | Participating Plan Information | Required sometimes** | Required sometimes** |
G | Financial Transaction | Not Required | Required sometimes*** |
H | Financial Information | Not Required | Required |
I | Financial Information (Small Plans) | Required | Not Required |
*Required when benefits are provided through an insurance company.
**Required if your plan's assets include more specialized accounts, like common or collective trusts, pooled separate accounts, master trust investment accounts, or 103-12 investment entities.
***Required when there are defaulted or uncollectible obligations (you answered “yes” to Schedule H lines 4b, c, or d.
Deadlines and penalties
The Form 5500 must be filed by the last day of the seventh month after the plan year ends. In other words, if your plan starts on January 1, you'll need to report on the previous year by July 31. The IRS will grant an automatic 2½ month extension if the plan sponsor files a request by the initial filing deadline. This would extend the filing deadline in the previous example to October 15. Businesses may apply for an extension by completing the Form 5558.
Late Form 5500-series returns are subject to penalties imposed by both IRS and DOL:
The IRS penalty for late filing of a 5500-series return is up to $250 per day, up to a maximum of $150,000.
The DOL penalty for late filing can run up to $2,739 per day, with no maximum. There are additional penalties for plan sponsors that willfully decline to file.
If you miss a filing deadline, you should promptly reach out to your professional preparer to file the late return under the DOL’s Delinquent Filer Voluntary Compliance Program (DFVCP). Filing under the DFVCP can greatly reduce the penalty owed.
If the IRS or DOL contacts you about a delinquent Form 5500-series return, you should request the assistance of your professional preparer, if you used one, to assist you with correcting the issue. Depending on the timing and content of the letter, you may still be able to file under the DFVCP..1
The IRS has stated that it won't pursue any additional late filing penalties for delinquent filers who satisfy the DFVC requirements and pay the reduced penalty.
How to file form 5500
Put the paper and pen away: Forms 5500 and 5500-SF must be filed electronically using the DOL's EFAST2 system. The only exception to the rule is the Form 5500-EZ, a shorter version for owner-only or foreign plans. Depending on your circumstances, you may be able to file the Form 5500-EZ using a paper form or using the DOL’s EFAST2 system.
EFAST2 is accessible via the agency's website or through accredited vendors that integrate with the system. Gusto Retirement integrates with EFAST2 for fast, accurate, and secure Form 5500 filing.
Before submitting, carefully review your form as errors could trigger penalties or even a subsequent DOL audit. Common errors include:
Inputting the wrong employer identification number (EIN) or plan number
Including more than 12 months' worth of data
Prematurely marking a plan as "terminated" when all assets haven't been distributed yet
Listing retirement deferrals that add up to more than what federal limits allow
Need additional support? Reference this exhaustive DOL FAQ sheet on the EFAST2 system.
What to do after filing
Once you've filed, you'll need to provide employees with the highlights. The Summary Annual Report (SAR) reports the total value of your plan's assets, any administrative costs, and other high-level information from the Form 5500-series return.
The SAR is due to participants within nine months after the end of the plan year. If you submitted your Form 5500 on time, that means you have two months to furnish the document. You may choose to provide the SAR as a hard copy or digitally—but if you opt for the latter, you'll need to follow the DOL rules regarding electronic disclosures.
In addition to receiving the SAR, participants may request a copy of the plan's full Form 5500-series return at any time. Note that participants aren't the only ones with access. Forms 5500 and 5500-SF are public documents and will be accessible to the general public on the DOL's website. Forms 5500-EZ are not publicly available.
How Gusto Retirement helps you with Form 5500
Gusto Retirement helps our customers prepare and file their Form 5500-series return on time. In addition, Gusto Retirement Services, LLC serves as the 3(16) fiduciary administrator for all customers using one of our integrated or quick sync payroll providers (Gusto).
This means that if we are your 3(16) we'll take on the legal responsibility for filing your Form 5500.² Want to learn more about how Gusto Retirement makes offering a 401(k) seamless?
FAQs
What is Form 5500 and who has to file it?
Form 5500 is an annual report that employers sponsoring a 401(k) or other employee benefit plan must file with the federal government. It provides the IRS and Department of Labor with information about the plan's finances, participants, and operations. Most employers with an active 401(k) plan are required to file — the only common exception is Solo 401(k) (owner only plans) plans with less than $250,000 in assets.
Which version of Form 5500 do I need to file?
It depends on your plan size. Employers with fewer than 100 plan participants generally file the shorter Form 5500-SF. Solo 401(k) plans with $250,000 or more in assets generally use the Form 5500-EZ. All other plans generally file the full Form 5500. Solo 401(k) plans under $250,000 in assets are entirely exempt from filing.
When is Form 5500 due?
Form 5500 is due by the last day of the seventh month after the plan year ends — typically July 31 for calendar-year plans. Employers can request an automatic 2½-month extension by filing Form 5558 before the original deadline, pushing the due date to October 15.
What are the penalties for filing Form 5500 late?
Late filers face penalties from both the IRS and the DOL. The IRS charges $250 per day, up to a $150,000 maximum. The DOL can charge up to $2,739 per day with no cap. Employers who discover they've missed a filing can reduce penalties significantly by using the DOL's Delinquent Filer Voluntary Compliance Program (DFVC).
What is the 80-120 rule for Form 5500?
The 80-120 rule prevents plans from having to frequently switch between "small plan" and "large plan" filing status. A small plan doesn't become a large plan until it has more than 120 participants (not just 100). Conversely, a large plan doesn't revert to small plan status until participants drop below 80. This buffer reduces administrative disruption from year-to-year fluctuations near the 100-participant threshold.
Disclosure
¹ This content is for informational purposes only and is not intended to be taken as tax or legal advice. Please contact a tax professional for further information.
² 3(16) plan administrative services are offered by Gusto Retirement Services, LLC and only made available to clients who use the integration services available through Gusto's payroll service.
