form5500 pension

The Department of Labor (DOL) has made changes to the Form 5500 instructions and participant count rules. This change affects how plan participants are counted towards the annual audit threshold.

Understanding the changes to the Form 5500 participant count rule

Historically, the DOL has required that an independent auditor perform an audit of any plan deemed to be a “large” plan, defined as any plan with 120 or more eligible participants on the first day of the year. Plans reaching this threshold were considered large until the number of eligible participants dropped below 100, if ever.

The key word here is “eligible.” Until now, plan size has been based on the number of participants who were eligible to participate in a company’s plan, regardless of whether they chose to participate.

The new participant counting methodology

In 2023, the DOL revised instructions for determining whether a plan is deemed large and required to undergo an annual audit. The new rules state that for plan years beginning on or after January 1, 2023, only participants with account balances at the beginning of the year will be counted. It is important to note that this includes retired, deceased or separated employees with assets in the plan.

The DOL estimates that of the approximately 844,000 pension and welfare benefit plans that file, around 19,400 will be reclassified as “small” plans under the new rules. This will allow them to file Form 5500-SF, which includes a waiver of the annual audit requirement.

The SECURE Act 2.0 includes a number of incentives, such as automatic enrollment and automatic plan portability, designed to raise the number of people participating in retirement plans. The new participant counting rule will, to some extent, offset the expected increase in new participants as a result of SECURE Act 2.0 incentives.

Ultimately, this change is intended to reduce expenses for small plans and encourage more small employers to offer their employees workplace retirement savings plans.

Who does the participant count rules change affect?

The new Form 5500 participant count rules apply to any organization required to file the Form 5500. These include for-profit and nonprofit organizations, public and private companies, and companies with defined benefit plans and defined contribution plans. In short, any organization that provides pension benefit plans covered by Employee Retirement Income Security Act (ERISA) of 1974 is subject to the new rule.

What’s next for Form 5500 filing requirements?

It is likely that more changes to the Form 5500 are on their way. Future versions of Schedule H of the Form 5500 will add a section for “administrative fees,” including investment advisory and management fees, actuarial fees, legal fees, Independent Qualified Public Accountant (IQPA) fees, and other fees and expenses.

The Form 5500 is the main source of information and data about the operations, funding and investments of approximately 864,000 pension and welfare benefit plans available to the IRS, the DOL and the PBGC. The goal of these changes is to bring greater transparency to plan transactions, improve enforcement efforts and help the agencies involved conduct better research.

How BPM can help

Regardless of plan type or size, compliance is paramount, so it is important to work with experienced, certified and independent benefit plan auditors. Whether you are facing a mandatory audit or are unsure of your current participant or audit status, contact us with any questions about your plan’s responsibilities.

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