Split plan to avoid audit

This question might go out of style with the change in counting participants to determine whether a plan is required to have an audit.

Normally, the answer is yes, you can split a plan into two and avoid the audit, assuming all of the good things that go into maintaining separate plans. The question that was brought to my attention is whether a sponsor, finding out today that their particpant count went over 120 on 1/1/22, do the split retroactively to 1/1/22. I don't think you can, but I raise this to make certain that I'm correct on that. Thanks for any replies.

Here is a link to several posts from a few years ago discussing splitting a plan to avoid an audit:  Splitting Plans to avoid audit

It includes comments from those who have done this.  Note that all of the comments focus on how to split the plan prospectively including steps to take to mitigate possible challenges to the process.  There are several comments about the DOL and IRS perspective on how to count participants as of the beginning of the year.  Basically, they will look at facts on the first day of the plan year and a plan cannot alter those facts.

My take is the plan will not succeed in trying to alter, with a retroactive amendment, the participant counts as they stood on 1/1/2022.

It will be interesting to see if anyone has had any more recent experience on the topic.

My opinion, upon which you may not rely, is that you can't do this retroactively for a plan on the calendar year for 2022.  My opinion also is that if the sponsor wants to avoid an audit, that's a red flag in and of itself and I wouldn't want this employer as a client.  Only more trouble ahead.

my two cents - sometimes the cost of maintaining two separate plans will rival the cost of an audit on one plan anyway.....

(i.e. administration, reports, plan docs, etc.)