The Department of Labor (DOL) requires sponsors of employee benefit plans subject to the annual Form 5500 to include an audit report from an independent qualified public accountant. There is an exception to this requirement for small plans, those with fewer than 100 participants at the beginning of the plan year.
Currently, the rules require plans with 100 or more eligible participants at the beginning of the plan year, to be audited. That means employees who are eligible to participate even though they are not participating are included in the count for determining the audit requirement. However, on February 23, 2023, the DOL issued a pair of Federal Register Notices which announced changes to the 2023 Form 5500 for plan years beginning on or after January 1, 2023. One of the key changes is how the participant count will be determined. 100 will still the deciding number, but it will be based on the number of participants with account balances at the beginning of the plan year. Plans with plan years beginning before January 1, 2023, will still need an audit under the current count rules for attachment to the 2022 Form 5500, even if their participant count under the new counting methodology is less than 100.
This change was enacted to reduce expenses for small plans and encourage more small employers to offer workplace retirement plans to their employees.
If your Plan’s adoption agreement has a provision to force out terminated participants with account balances below a certain dollar threshold, now is the time to review that those participant account balances are being removed from the Plan, so they are not included in the Plan’s participant count at January 1, 2024. Actively managing the Plan to remove small account balances of terminated participants will be one way to help keep the participant count as low as possible, which for some Plan’s could potentially drop their participant count below 100 using the new counting methodology.