UPDATE AS OF JUNE 2023 to: When Does a Retirement Plan Require an Audit?
New Form 5500 Guidance
For 2023, the Department of Labor revised Form 5500 instructions and how plan sponsors should count participants to determine if they qualify for the simplified Form 5500 Reporting for Small Plans.
The new participant counting methodology will count only participants with an account balance at the beginning of the plan year. Prior to this change, the participant count included eligible participants, even if not participating, or participants with an account balance. Most notably, eligible participants who have never participated, and/or do not have account balances due to any form of contributions will no longer need to be counted as participants. A Plan with fewer than 100 participants can use the simplified “Small Plan” Form 5500 and will not require an audit.
According to the DOL, this change will reduce the number of plans that must file as large plans, and obtain an annual audit, by nearly 19,500.
This is effective immediately for plan years beginning on or after January 1, 2023. It is important to note filings for plan years beginning prior to January 1, 2023, must follow the old participant count methodology, which includes participants that are eligible but not participating.
Great News for Plan Sponsors
With the SECURE Act’s changes to eligibility provisions on the horizon, which includes providing more plan access to long-term part-time employees, the change in participant count methodology could help offset that increase in participant count. It may allow more plans to remain as small plans, saving time in addition to the cost of an audit. Furthermore, it will allow larger employers to offer a benefit plan and existing plan sponsors to expand eligibility without the risk of triggering an audit. Compliance remains paramount for all plans, of course, and it is imperative to work with knowledgeable benefit plan auditors to ensure compliance oversight and keep plans compliant.
Our ERISA professionals can help ensure your employee benefit plans are cost-effective and support your business objectives while complying with Department of Labor, IRS, and ERISA rules and regulations. Contact our Los Angeles, Long Beach, or Orange County office to learn more.