Compliance Testing & Filing Form 5500

Have you received an email asking for the annual census and compliance questionnaire to be submitted? Or maybe you’ve already done that, and have been asked to sign the Form 5500 for your retirement plan offering? These are very important pieces of administering your company/organization’s retirement plan. Let’s talk about why.


 As we navigate through the complexities of managing retirement plans, there are essential tasks that cannot afford to slip through the cracks. Among these, two crucial elements stand out: compliance testing and filing Form 5500. Today, we’re here to offer a friendly reminder of their importance and why they should be at the top of your to-do list.

Understanding Compliance Testing


Compliance testing is an essential part of ensuring that your 401(k) or 403(b) plan remains compliant with IRS regulations. These tests assess whether your plan is operating within the legal limits set by the IRS, particularly regarding nondiscrimination and contribution limits.


ADP/ACP Testing: The Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests evaluate whether contributions made by highly compensated employees (HCEs) are within acceptable limits compared to those made by non-highly compensated employees (NHCEs).


Top-Heavy Testing: This test determines whether key employees hold a disproportionate share of plan assets, ensuring that the plan does not unfairly favor highly compensated individuals.


Coverage Testing: Coverage testing verifies whether a sufficient number of non-highly compensated employees are benefiting from the plan, preventing discrimination against lower-paid employees.


The Importance of Form 5500 Filing 

Form 5500 is the annual report that must be filed with the Department of Labor (DOL) to provide information about the operation, funding, and administration of your retirement plan. It serves as a vital tool for the government, participants, and beneficiaries to monitor plan compliance, financial conditions, and investments.


Transparency: Form 5500 promotes transparency by requiring plan sponsors to disclose comprehensive information about the plan’s operations, investments, and financial health.


Legal Requirement: Filing Form 5500 is not optional—it’s a legal requirement for most retirement plans. Failure to file can result in severe penalties, including hefty fines imposed by the IRS and DOL.


Participant Protection: Completing Form 5500 ensures that participants and beneficiaries have access to critical information about their retirement plan. The Summary Annual Report (SAR) must be provided to plan participants and beneficiaries each year.


A Friendly Reminder and Action Plan


As a plan sponsor, it’s crucial to stay proactive and ensure that compliance testing and Form 5500 filing are on your radar. Here’s a simple action plan to help you stay on track:


  1. Mark Your Calendar: Set reminders well in advance of the deadlines for compliance testing and Form 5500 filing to avoid last-minute rushes. Attached is a compliance calendar for Defined Contribution (DC) and Defined Benefit (DB) Plans, for a calendar year plan, that you may use for reference.


  1. Engage with Experts: Consider partnering with retirement plan consultants or third-party administrators who can guide you through the compliance process and ensure that all requirements are met.


  1. Stay Informed: Keep yourself updated on changes to IRS and DOL regulations that may impact compliance testing and Form 5500 filing requirements.


  1. Take Action: Don’t procrastinate! Start preparing for compliance testing and Form 5500 filing well ahead of the deadlines to avoid unnecessary stress and potential penalties.


In conclusion, compliance testing and Form 5500 filing are not tasks to be taken lightly. They play a critical role in maintaining the integrity and legality of your retirement plan while safeguarding the interests of plan participants. By prioritizing these responsibilities, you demonstrate your commitment to upholding the highest standards of fiduciary duty and ensuring a secure financial future for all.

Julia Sanders | AIF®, CPFA®

Retirement Relationship Manager 


Meet Julia, a people-focused life-long learner with several years of experience in the retirement plan industry. Throughout her career, Julia has been committed to maintaining strong client relationships by providing incredible customer service. She is passionate about helping clients define and plan for their retirement goals. Julia’s daily role at the firm energizes and reinforces her commitment to client-focused work. 


Investment Advisory Services Offered Through M Holdings Securities, Inc. A Registered Investment Adviser, Member FINRA/SIPC. Rose Street Advisors LLC is independently owned and operated. File #: 6672972.2