A welfare-plan Form 5500 can be read in several different ways. The way that produces the most information in the shortest time is, in our experience, the way a Department of Labor investigator reads it. Investigators are not necessarily looking for errors in the first pass. They are looking for the questions the filing surfaces — the lines on the form that, taken together, suggest where the next question should be directed. Reading the form this way is a practice. It is also one of the more useful things a plan sponsor can do annually, in advance of any specific inquiry.
The first questions
Our review begins with three lines on the face of the form and one question that none of them, on their own, will answer.
- The participant count. What is it, and what was it the prior year? A welfare plan moving from 99 to 101 participants is a different filer than one moving from 800 to 802. The threshold change brings the Schedule C obligation into play; we want to know whether the filer recognized the move and whether the schedules reflect it.
- The plan year. Does it match the plan document? Plan-year changes happen — sometimes administratively, sometimes as a function of an acquisition, sometimes as a function of a benefit-design refresh. A plan year that has shifted without a corresponding amendment to the document is a question to put to the sponsor before any other.
- The plan sponsor and EIN. Is it the entity currently operating the plan? Acquired plans frequently file under sponsor names that no longer exist. The question is not whether the filing is wrong — it may not be — but whether the filer has been deliberate about the entity on which the filing rests.
The question those lines do not answer, and that we hold open through the rest of the review: does the documentation in support of this filing tell the same story?
The Schedule A reading
Schedule A is where the analytical work begins. The schedule is, in form, a report of carrier-provided information. In substance, it is a disclosure of compensation paid to persons providing services to the plan — a disclosure that the filer is responsible for, even when the working figures are carrier-provided.
Our review of the Schedule A asks two questions that are not visible on the schedule itself. The first is whether the compensation figures reconcile to the broker compensation agreement on file with the sponsor. They often do not. The second is whether any compensation has been characterized by the carrier as something other than reportable — a marketing payment, a conference allowance, a retention incentive — that the regulatory framework would treat as compensation in connection with the plan.
The schedule choices
Welfare-plan filings vary in which schedules are required. Our review confirms the inclusion or omission of three in particular.
Schedule C — required for plans of 100 or more participants when service-provider compensation exceeds the threshold. The omission of Schedule C is one of the most frequent technical defects we identify. It is also one of the most diagnostic: an omitted Schedule C usually means the indirect-compensation analysis was not performed, which means the Schedule A is also worth a closer look.
Schedule H or I — required for funded plans, omitted for unfunded fully insured plans. The distinction is operational, not formal. A plan that has accumulated a trust corpus through retrospective rate refunds may be funded in substance even if it was contemplated as unfunded. Whether that observation produces a filing change is a separate question; whether the filer has identified it is the first one.
Schedule G — required where there are reportable transactions, loans, or fixed-income obligations. For welfare plans, the schedule is usually a non-event. Where it is required and not filed, the question is generally larger than the schedule.
What the review produces
The output of a Cherry Park first-pass review is rarely a list of errors. It is a list of questions, organized in the order in which we would put them to the filer. Some of the questions have technical answers. Some have operational answers. Some have answers that the documentation will not produce, and that the sponsor will need to assemble. The point of reading the filing this way is to identify the questions before someone else does.
A regulator's first pass through a Form 5500 takes, in our estimation, somewhere between thirty minutes and an hour. The patterns above are most of what the regulator is looking at. A plan sponsor who has read the filing the same way, in advance, is in a different posture than one who has not — not because the underlying compliance of the plan is different, but because the record on which any subsequent conversation will rest is more legible to the reader encountering it for the first time.
A publication from the practice. Cherry Park's plan reviews are conducted by a senior compliance practitioner under a signed nondisclosure agreement. To request a confidential review of your most recent Form 5500, contact the practice directly.