The Effects of Downsizing or Bankruptcy on 5500s

COVID-19 has been a firestorm for the business world. Many have had to let go of employees, declare bankruptcy, or worse yet, shut their doors permanently. Unfortunately, this can have an impact on the Form 5500 as well. Each situation needs to be reviewed carefully to determine next steps. Below are three scenarios that we have seen repeatedly in the last couple of months.

1. Downsizing – Dropping the enrollment count to be less than 100 enrolled participants in 2020. 

If in 2019, a group had over 100 enrolled participants, and before COVID-19, there was no question that the group would continue to file year after year. However, in 2020, the Plan Sponsor had to drop the participants to be below 100. The ERISA Plan is still very much active. The benefits for those remaining are still in place. 

For 2019’s 5500 report, you will include a special benefit code under section 8b on page two. The code is “4R.” It represents the fact that the ERISA Plan after 2019 is still active but not requiring a 5500 filing going forward since the enrollment count is below 100. If the enrollment count goes back over 100 on a future first day of the ERISA Plan Year, then the report will have the code “4S” to signify that reporting is once again required.

Wrangle note: Once we have a file in the Dashboard, we proactively check every year to see if the group hit enrollment counts of 100+ participants at the beginning of the Plan Year. You are not required to try to remind us to check giving you one less task to remember to check each year. 

2. Declaring Bankruptcy and being taken over by a new company.

For some, the challenges are too great and the group decides to sell its business to another entity. With any acquisition, the decisions of the 5500s can be tricky. A recent blog post covers many aspects of what to consider for the Form 5500. 

3. Declaring Bankruptcy and/or dissolving the company and leaving a bankruptcy law firm or trustee to complete the tasks.

Losing a client in this manner can be very challenging. Wrangle will try every avenue possible to get the 5500 signed and e-filed. If the broker provides the contact information for the attorney/trustee, we will reach out to them.

The reason for our due diligence is to help prevent issues for the Plan Administrator.

For the DOL, a company is still required to file a final report and they will reach out to the Plan Administrator and hold the individual personally responsible. This does include the penalty fees as well as noted under 29 CFR § 2560.502c-2.

COVID-19, the uninvited guest who has taken a seat at the table for quite some time, has changed the business landscape for the foreseeable future. If any clients are undergoing a major shift don’t hesitate to ask for assistance from Wrangle. We will continue to work alongside you.

For more information, feel free to contact Ann McAdam, Technical Consultant, amcadam@wrangle5500.com.