News
In a study covering nearly 75,000 companies, Mount Laurel, N.J.-based benefits brokerage Corporate Synergies finds many HR benefit managers falling down on the job when it comes to filing Form 5500s. In some employer categories, the firm reveals, 5500 noncompliance approaches 60%. “There is massive 5500 noncompliance. Those are the facts,” Eric Raymond, Corporate Synergies president, says.
This is the second time the company has examined 5500 compliance. The first review, conducted in 2005 using 2003 filing data (the latest year for which data was available at the time), showed that average noncompliance across all employer sizes was 47%. The most recent analysis of 2005 filings shows aggregate noncompliance inched up two percentage points across all classes of employers.
Corporate Synergies’ analysis assumes that companies with 100 or more workers who had filed a 5500 for a group retirement plan also would offer a group health, life, disability or other program. Those programs would be covered by the completion of a medical health schedule. Corporate Synergies tracked the number of companies filing those schedules.
For example, of the 38,753 firms with 100 to 300 employees, 37,030 would be expected to file a medical health schedule under the broker’s research assumptions, but only 15,063 did – just 41%, leaving a non-compliance rate of 59%. “[We] reviewed our methodology with DOL,” Raymond says. Corporate Synergies banded the companies studied by size. Compliance rates ranged from 29% to the aforementioned 59%. Corporate Synergies notes that some allowance should be made for the noncompliance of larger companies that may be filing via their parent company.
So what? The research raises the question: Why should an employer care about filing a 5500 correctly? Raymond says there are two main reasons. One, it’s required. Noncompliance fees can be as much as $1,100 per day. “DOL has increased random audits of all plans,” he notes, cautioning employers from simply dismissing the department’s enforcement efforts.
Two, and more important for Raymond, is that the 5500 is employers’ – and increasingly employees’ – window into the world of group benefits costs. Such information is more important today than ever because so much of plan costs are borne by individual workers.
“Now, employees are paying for a big piece of this and they have a right to know what’s going on with their plan and how it’s managed,” he says. “I’m surprised there hasn’t been an employee that sued an employer because their health insurance was not managed properly. I’ve had several attorneys say this is coming down the pike.”
Another question the research raises is why noncompliance is so high. “This comes down to: People think somebody else is doing it, they don’t have time to do it or they don’t know how to do it,” Raymond says.
He notes that this study just addresses non-filers, adding that improperly filed 5500s are likely just as big a problem. Raymond also hopes his efforts may help spur a higher level of accurate compliance, if only to make his industry more transparent. “A lot of companies are paying things that they never realized and their employees never realized,” he says.