1st plan yr (short or not) - 5500 large plan?

[TPApril]

New Plan:

• Adopted 5/1/22
• Effective 1/1/22
• 401(k) and Match only as of 7/1/22
• No Employer Contributions which are allocated based on the 1/1/22 date
• Participants with Balance Count at 12/31/22: 150

I believe that they do not qualify for any of the exceptions to filing as a large plan with a set of audited financial statements, but curious of other thoughts.

• Short plan year exception - although the plan only had contributions moving forward during part of the plan year, the plan was declared effective as of 1/1, so no exception here
• Over 120 - There were more than 120 participants at eoy, so no exception

[Bill Presson]

Agreed.

[WCC]

What was the participant count as of the beginning of the plan year?

[TPApril]

3 hours ago, WCC said:

What was the participant count as of the beginning of the plan year?

I really don't know.

I was thinking 0.

I don't have the data yet (not our plan). I do know there was no specific special entry date at plan inception.  If there were actually less than 120 who were considered eligible based on eligibility requirements at 1/1, can we get away with combining first year audit with second year audit?

[WCC]

If they had less than 100 participants on the first day of the plan year, why would an audit for 2022 be required? I am a bit hesitant and confused because Bill is always right, so I must be missing something. Or is this question related to the 2023 audit requirement?

[Paul I]

A lot of people have wondered about how to count participants for purposes of determining whether an audit is needed, and applying the rules to the first plan year has always been, shall we say, counterintuitive.

First, we should understand that these counting rules are not IRS rules.  They are DOL rules appearing in 2510.3-3(d)(1)(ii):

(ii) An individual becomes a participant covered under an employee pension plan—
     (A) In the case of a plan which provides for employee contributions or defines participation to include employees who have not yet retired, on the      earlier of—
         (1) The date on which the individual makes a contribution, whether voluntary or mandatory, or
         (2) The date designated by the plan as the date on which the individual has satisfied the plan's age and service requirements for participation

For a new plan, look at the employees who satisfied these eligibility requirement on the effective date of the plan to do the count and note that this has nothing to do with whether an employee gets an allocation of a contribution later in the year.

[RatherBeGolfing]

11 minutes ago, Paul I said:

A lot of people have wondered about how to count participants for purposes of determining whether an audit is needed, and applying the rules to the first plan year has always been, shall we say, counterintuitive.

First, we should understand that these counting rules are not IRS rules.  They are DOL rules appearing in 2510.3-3(d)(1)(ii):

(ii) An individual becomes a participant covered under an employee pension plan—
     (A) In the case of a plan which provides for employee contributions or defines participation to include employees who have not yet retired, on the      earlier of—
         (1) The date on which the individual makes a contribution, whether voluntary or mandatory, or
         (2) The date designated by the plan as the date on which the individual has satisfied the plan's age and service requirements for participation

For a new plan, look at the employees who satisfied these eligibility requirement on the effective date of the plan to do the count and note that this has nothing to do with whether an employee gets an allocation of a contribution later in the year.

This is the right answer for a 2022 Plan Year.

[Bill Presson]

2 hours ago, WCC said:

If they had less than 100 participants on the first day of the plan year, why would an audit for 2022 be required? I am a bit hesitant and confused because Bill is always right, so I must be missing something. Or is this question related to the 2023 audit requirement?

I'm always confident but I'm not always right. Open to alternative responses.