80-120 Participant Rule Question

[Guest Powers]

I am having some confusion regarding the 80-120 Participant Rule. I have a plan that had 108 participants (line 6) in ’99, 104 in ’00, and 84 in ’01. For all plan years that I have information on the participant count never exceeded 120 and the 5500's were filed as large plans complete with audits. My client wants to know if he can forgo the audit for the 2001 plan year and file a Schedule I. (He, of course waits until 2 weeks before the filing deadline to inquire.) Off the cuff I told him that I thought that we would have to file the H as always, but now I am interpreting this rule differently.

***80-120 Participant Rule: If the number of participants reported on line 6 is between 80 and 120, and a Form 5500 was filed for the prior plan year, you may elect to complete the return/report in the same category ("large plan" or "small plan") as was filed for the prior return/report…….***

The word “may” is what is throwing me. Does this mean I “may” elect to file as a small plan for 2001? I know that this rule is usually used so that a small plan can remain filing as such (why ever would you want to file as a large plan if you don’t have to?). But does it also work in the reverse way? Because the count has dropped below 100, is that a way to file as small plan this year? Any guidance would be greatly appreciated.

:confused: :confused:

[Blinky the 3-eyed Fish]

If a plan has 100 or more participants as of the beginning of the plan year, it is considered a large plan and must be audited. BUT if the participant count does not exceed 120 and never did at the beginning of any year, the plan can still be considered a small plan.

Now, once the plan goes over the 120 participant count at a beginning of the year, they can only be considered a small plan if the count drops below 100. However, they still can consider themselves a large plan if the count remains at 80 or above. (But as you point out, who would do that?)

So, in your case, I am assuming your 84 count is at the beginning of the year. Therefore, they can file as a small plan (or a large plan if they choose).

[Guest SANSIMA]

I hate to confuse the question already asked, but maybe you can help me out with my client's plan filing. Up until last year the plan filed small plan, e/z forms(when they had them).

Last year (2000) we had to file sched H becuase the counts were as follows: line 6: 148, line 7a:92, line 7d,7f,&7g:119.

This year (2001) the numbers are as follows:line 6:119, line 7a:98, line, line7d,7f:112, 7g:92

Do we have to have an audit this year and file sched H or can we file sched I.

This is a profit sharing plan and they made no contributions this year and termed a lot of people.

Thanks so much for any help.

Susan

[pmacduff]

As Blinky pointed out, if your beginning of the 2001 year count is over 100 and Sch H was filed for 2000, Schedule H is required for this year. If your beginning of the year count for 2002 is under 100, you will be able to then file the Sch I for 2002.

[Guest carsca]

Blinky,

You said:

"Now, once the plan goes over the 120 participant count at a beginning of the year, they can only be considered a small plan if the count drops below 100."

Where do you see that in the instructions/ regulations? The way I read the instructions, a plan that covered 100 or more participants as of the begginning of the year is a "large plan, " unless the 80-120 rules applies.

If a plan does not qualify for the 80-120 rule (e.g., it had 130 participants as of the beginning of the plan year), it should have to file as a "large plan," even if as of the end of the plan year the number of participants drops below 100.

Do you agree?

[WDIK]

I took Blinky's statement to apply to future years where the count had dropped below 100, not the year with 120+ participants at the beginning of the plan year.

[Blinky the 3-eyed Fish]

You took it correctly.

[pbarrett]

I work for a TPA firm. We have a CPA who has audited a plan we administer for a few years. The plan has dropped the participant count well under 100 participants two years ago. I told the client they no longer need to have the audit done. The CPA hit the roof and told the client the DOL regs require that once an audit is done and a plan is deemed "a large plan" then they can never be considered small again. Well..., happy new year.

Does anyone know of such a DOL reg? If yes, can you tell me where to find it. I researched the link and found similar questions to what I am asking just for reference.

Any help would be greatly appreciated. Why me on the last day of the year!

Thanks.

[Blinky the 3-eyed Fish]

The 5500 instructions are quite clear. Direct the accountant to them. It sounds as if he is trying to protect some business.

[Harwood]

§2520.104-41 and §2520.103-1(d)

[pbarrett]

God bless you!

[BeckyMiller]

Having said all of this, don't forget the small plan audit rule. Even if you have fewer than 100 participants at all times, if the plan is subject to ERISA and has more than 5 percent of its assets in forms that can't be readily verified and protected and fails the expanded bonding requirement, they still need an audit. See the DOL web page for a discussion of what small plans will trigger an audit. http://www.dol.gov/ebsa/faqs/faq_auditwaiver.html