Frequently Asked Questions about Form 5330s
What do you mean by ‘late payrolls’?
How are late payrolls corrected - what has been partially corrected?
What if I don’t agree with the late payrolls?
How do I prevent late payrolls in the future?
What is a Form 5330?
Form 5330 is filed with the IRS and used to report and pay excise taxes related to certain plan errors, such as for late plan contributions.
When is Form 5330 due?
Form 5330 is due by the last day of the 7th month following the close of the plan year in which the excise tax originated. For example, if a plan with a December 31 year-end is using Form 5330 to report and pay excise taxes on late payrolls that occurred during the 2024 year, Form 5330 is due by July 31, 2025.
What do you mean by ‘late payrolls’?
The DOL requires that payrolls containing participant contributions be segregated from the general company assets and deposited to participant accounts within a certain time period from the pay date.
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For a plan that has fewer than 100 participating employees (small plans) as of the beginning of the plan year, participant contributions are considered to have been deposited timely if the deposit to the plan is made within seven business days from the pay date (weekends and federal holidays are not counted).
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For a plan that has more than 100 participating employees (large plans) as of the beginning of the plan year, participant contributions are considered to have been deposited timely if the deposit to the plan is made by the earlier of 1) the 15th business day of the month following the month of the pay date; or 2) as soon as reasonably possible (based on historical timing of the late deposits).
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For simplicity and consistency, Vestwell defines as soon as reasonably possible to be seven business days from the pay date.
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Large plans (generally subject to an independent audit) may want to review the late payrolls with their audit team before Vestwell proceeds with filing Form 5330s.
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How are late payrolls corrected & what has been partially corrected?
Late payrolls are corrected by:
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Depositing the participant contributions into the plan promptly after discovering an issue.
Reimburse participating employees for the lost opportunity to earn investment income on contributions deposited late. The reimbursement is referred to as ‘lost gains.’ As a convenience to you and the participating employees, Vestwell will calculate and pay lost gains into the accounts of affected participating employees. If the root cause of the delay is due to an issue on the plan sponsor’s part, we will add that reimbursement to your next quarterly invoice.
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Disclose the late payrolls to the IRS via Form 5330, accompanied by payment of an excise tax if deposited after 7 months following the close of the plan year. The excise tax is equal to 15% of the amount of the lost gains.
What if I don’t agree that the payrolls were late?
If you do not agree with the late payroll amount, reach out to clientsuccess@vestwell.com or let your Vestwell representative know what you think the total late payroll amount is. Form 5500 also reports late payrolls and should align with Form 5330. Our compliance team will update both forms accordingly. While Vestwell will identify and disclose observed plan failures to you, it is ultimately your responsibility as the plan sponsor to instruct us how to proceed.
How do I prevent late payrolls in the future?
It is the plan sponsor’s responsibility to ensure participant contributions are deposited timely. Review your internal procedures to ensure that the payrolls are transmitted to Vestwell as soon as possible following each pay date. If you are transmitting the payrolls to Vestwell in a timely manner but are experiencing processing delays, it is likely due to poor data quality. Review your payroll records and procedures to make sure the employee records are consistent, accurate, and kept up to date. Payrolls that contain incorrect social security numbers, missing data, ineligible employees with deferrals, or inconsistent hire, termination, and rehire dates are likely to result in processing delays.