What is the function of IRS Form 5500?

The function of IRS Form 5500 is to serve as an annual report that provides detailed information about a retirement plan's financial condition, investments, and operations. This form is essential for both the IRS and the Department of Labor to monitor compliance with regulatory requirements. It helps ensure transparency in reporting the financial status of pension and welfare benefit plans.

By completing Form 5500, plan sponsors disclose critical data, such as the plan’s assets, liabilities, and income, allowing for an assessment of the plan’s overall health and viability. This helps inform stakeholders, including participants, about the plan's financial situation and any changes that may have occurred over the reporting period.

While individual participant accounts are vital for plan participants, this detail is not the primary focus of Form 5500. Similarly, notifications of plan changes and employee deferral tracking serve different purposes and are not encompassed by the requirements of Form 5500. Thus, the accurate depiction of its function as an annual report detailing a plan's financial conditions makes it the correct answer.