The Department of Labor (DOL) has gone paperless this year, and all forms for the 2009 plan year must be filed electronically — no exceptions.

To help employers, the DOL has just launched its EFAST2 online filing system — and it’s ready to accept electronic submissions of Form 5500 and Form 5500-SF.

But there’s the rub: Using it requires an e-mail account, which according to recent reports, 20%-28% of small business owners (mostly older owners) still don’t have — leaving them vulnerable to steep fines.

The Employee Retirement Income Security Act (ERISA) imposes strict requirements on employers sponsoring 401(k), group life, medical, dental and disability plans to report financial information to the Department of Labor (DOL) on Form 5500.

U.S. Census Bureau reports show there are about 110,000 employers that employ 100 or more people — and public records show some 60,000 (55%) of these employers have not filed a Form 5500, according to a recent ERISA Pros’ study.

Could result in expensive penalties

An employer can be penalized by the DOL up to $1,100 for each day its Form 5500 is late. The penalty is cumulative and is applied separately to each benefit plan an employer offers.

That means fines can add up fast.

“An employer sponsoring life, medical, dental and disability insurance plans that flies its Form 5500s just 30 days late could be fined $132,000,” said Bernard Kearse of ERISA Pros. “If that employer earns 8% net after tax, it would have to generate $1,650,000 in sales revenue to pay for the government’s fine.”

The feds don’t do a very good job of defining the term “participant”, but any benefits pro knows that there are people who fall into gray areas and it’s crucial to know whether to include them in the tally.

The following people are considered participants:

• Anyone who is explicitly covered in the plan documents.
• Someone who has made a monetary contribution to the plan (voluntarily or involuntarily).
• Someone who will become eligible to receive benefits once the “contingency for which the benefit is provided” (e.g., workers’ compensation) occurs.
• An active participant – currently in covered employment – in your retirement plan. This includes people who are eligible to defer benefits but decline the option.
•  Former employees in “pay” status (i.e., not yet fully paid out), including those who elect COBRA coverage.
• Deceased employees whose beneficiaries are entitled to receive benefits (count the deceased employee only).

The following people are not considered participants:

• Dependents on the health plan.
• An alternate-payee beneficiary.
• Former employees who are fully paid out, including those who will receive money from an insurance company.
• Employees eligible for your health plan who’ve elected not to participate and aren’t making cafeteria plan deferrals to pay out-of-pocket expenses.