Form 5500 Counts - participants w/o balances don't count towards large filer and audit status

[justanotheradmin]

Thoughts? 

"After considering the public comments, the Agencies decided to adopt the proposed counting method change for defined contribution individual account plans by adding a new line item on both the Form 5500 and Form 5500-SF for defined contribution pension plans to report participants with account balances at the beginning of the plan year (there already is a line item for reporting the number of participants with account balances at the end of the plan year). Instead of using all those eligible to participate, defined contribution plan filers will look at the number of participants/beneficiaries with account balances as of the beginning of the plan year (the first plan year would use an end- of- year measure) when determining if they are eligible for small plan reporting options, e.g., the Form 5500-SF. Conforming changes are also made to the short plan year filings and the “80-120” Participant Rule instructions to reflect this new counting method. See Appendix C for details on changes to forms and instructions related to this audit related participant counting method change."

https://www.dol.gov/newsroom/releases/ebsa/ebsa20230223

https://public-inspection.federalregister.gov/2023-02653.pdf

https://public-inspection.federalregister.gov/2023-02652.pdf

[Lou S.]

Thoughts? It's about time?

Good change. I've had a plan for years on the edge of 120 that has like 35 people actually participating so nice to see they won't be pushing into audit territory anytime soon with this change. I was a bit worried since I think they have just enough long time part times who might push them over 120 but the chances that those will actually participate is quite small.

 

[Gilmore]

Not to mention the issue of LTPT potentially added to the counts in the future.  This is a huge relief.

[bzorc]

Here is a question posed to me:

Plan with effective date of 2/1/22 had 145 participants on 2/1/22, but only 40 with balances. Question is whether the plan is subject to audit for the 2022 plan year end, and then drops out for 2023, because they won't hit 100 with balances. I think they need a 2022 audit, but just want to see if I've missed anything. Thanks for any replies.

[Gilmore]

Are you saying the plan year runs 2/1/22 to 1/31/23, or is the first year a short year ending 12/31/2022?  

[Gilmore]

Actually, disregard that.  Either way your filing a 2022 5500 that would be using the 2022 instructions, so I think an audit would be required for 2022.

[5500sorBust]

Does this mean that any new plan will be a small filer the first year?

[Paul I]

The changes in the draft instructions for the 2023 5500-SF say:

IV.    Changes to 2023 Instructions for Form 5500-SF Short Form Annual Return/Report of Employee Benefit Plan
1.    Instructions for Form 5500-SF, “General Instructions,” “Who May File Form 5500-SF,” numbered paragraph 1 is revised to add two new sentences at the end to read as follows.
1.    The plan (a) covered fewer than 100 participants at the beginning of the plan year 2023, or (b) under 29 CFR 2520.103-1(d) was eligible to and filed as a small plan for plan year 2022 and did not cover more than 120 participants at the beginning of plan year 2023 (see instructions for line 5 on counting the number of participants). To determine the number of participants covered by defined benefit pension plans and welfare plans, use the number described on Form 5500-SF, line 5a. Defined contribution pension plans use the number described on the Form 5500-SF, line 5c(1), except use the number described on line 5c(2) for defined contribution pension plans that check the “first return/report” box on Part I, line B;

Similar wording appears in the Form 5500 instructions.

Short version, if you check the box that says this is the first filing, the count to determine if the plan is a small plan or a large plan is based on the end of year count that is reported on line 5c(2).