Frequently Asked Questions about Form 5330s
What is a Form 5330?
Form 5330 is used to report and pay excise taxes related to retirement plans to the IRS. Generally, excise taxes reported on Form 5330s result from some type of failure within the plan. Vestwell is currently working on Form 5330s relating to late payroll deposits.
Where can I find the 5330 attachment?
To review the Form 5330 attachment, log into the sponsor portal, and navigate to My Plan > Annual Testing > 2021 Form 5330. The attachment is currently posted for review; the full form with the attachment will be uploaded once filed.
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 12/31 year-end is using Form 5330 to report and pay excise taxes on late payrolls that occurred during the 2021 year, Form 5330 is due by July 31st, 2022.
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.
- For a plan that has fewer than 100 participants (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 7 business days (i.e., weekends and Federal holidays are not counted).
- For a plan that has more than 100 participants (large plans) as of the beginning of the plan year, participant contributions are considered to be 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)
- For simplicity and consistency, Vestwell defines as soon as reasonably possible to be 7 business days from the pay date.
- Large plans (generally subject to an independent audit) may want to review the late payrolls with their audit team before Vestwell proceeds with filing the Form 5330s.
How are late payrolls corrected & what has been partially corrected?
Late payrolls are corrected by:
- Depositing the participant contributions into the plan
- Reimburse participants 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, Vestwell has already deposited lost gains into the accounts of affected participants.
- Disclose the late payrolls to the IRS via Form 5330 accompanied by payment of an excise tax.
- The excise tax is equal to 15% of the amount of the lost gains.
What if I don’t agree with the late payrolls?
If you do not agree with the late payroll amount, reach out to firstname.lastname@example.org or and let them 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 make sure both forms are updated accordingly. While it is Vestwell’s responsibility to identify and disclose any plan failures to you, it is ultimately up to you as the plan sponsor to tell us how we should 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 timely 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 SSNs, missing data, ineligible employees with deferrals or inconsistent hire, termination & rehire dates are likely to result in processing delays.