80-120 rule

This is/was my understanding of the rule:

A small plan filer can elect to file the same form until the participant count is over 120 and when over that must file as a large plan.

A large plan is considered a first year plan over 100 or over 120.

And that plan must file as a large plan until the count gets below 100. (*) see blow

The 80-210 rule allows any plan to file the same form (large or small) is the count is between 80 and 120.

But  once under 80, the plan must file as a small plan.  Not even allowed to file Schedule H.

I am seeing some internal correspondence here, that a plan, once that it is considered large, must still file as large until the count dips below 80.

So this goes against my (*) above.

When can a large plan filer move from Schedule H to Schedule I?  At 99 or 79 participants?

I'll jump in the deep end: when it is at 99 on the first day of the plan year. But most wouldn't file as a small plan that year if the likelihood is it would be back to a large filer within a year or two.

The 80-120 rule is to help avoid audit whiplash.

Yeah, I always chuckled at the basic concept of "the plan sponsor has the option to file the same version of the 5500 as last year" when they're in the 80-120 range.   

As in, why pay for the audit you don't have to get, now that you've come in under 100 for the first time in ages?  Not like anyone jumps at the chance to do the audit at 101, they always wait until 121.... (don't they??)

About a choice Bill Presson and Bri allude to:

If a plan’s administrator skips an audit for a year and the next year calls for an audit, an independent qualified public accountant’s professional standards require some work about comparisons between the audited year’s and the preceding year’s financial statements.

Skipping an audit (or a review, compilation, or agreed-procedures engagement) for a year sometimes results in not detecting an error that, with delay, becomes more burdensome to correct.

Either point might affect a later year’s IQPA fee.

With upcoming changes about some measures counting only participants with an account balance and some plans increasing an amount for an involuntary distribution, we might anticipate more questions about plans that fall below an audit threshold but bear a significant possibility of reentering an audit requirement.

For some of those, a plan’s administrator might evaluate, for an “off” year, whether getting some service of a certified public accountant is helpful for the plan’s administration.

Drop to 99 - can file as small plan, drop to 79 - must file as small plan.

Agree with other comments above. Also, plan audit scheduling and timing can often be a challenge, we see 5500 filing audit not completed issues in this space all the time, and I think moving in and out of audit years (doing/not doing) increases the risk of late audit completion in the years required. 

And it's account balance we are counting starting in 2023, yes?

Yes that's my understanding too - total participants with account balances as of 01/01/2023 (for a calendar year plan) will determine whether or not an audit is required for the 2023 plan year.

How about determining the participant count for filing the initial 5500 for a new PEP?  The PEP was established 1/1/2022.  The first adopter joined the PEP on July 1, 2022.  This adopter has 200 eligible employees.  Technically, the 1/1/2022 PEP participant count is 0.  Would this PEP require an audit for 2022?

13 minutes ago, jsample said:

How about determining the participant count for filing the initial 5500 for a new PEP? 

EOY count is your BOY count.

Let's add this: If a plan falls below 100, and above 80, and elects to file as a large plan, do they file the 5500 with Schedule H and all of the other good schedules (A,C,D,R, and the audited financial statement), or can they file Schedule I, or even 5500-SF? Then they keep the audited financial statements "in their back pocket", so that an auditor does not have to go back and perform procedures on a prior year that was not audited, as is mentioned above.

1 minute ago, bzorc said:

Let's add this: If a plan falls below 100, and above 80, and elects to file as a large plan, do they file the 5500 with Schedule H and all of the other good schedules (A,C,D,R, and the audited financial statement), or can they file Schedule I, or even 5500-SF? Then they keep the audited financial statements "in their back pocket", so that an auditor does not have to go back and perform procedures on a prior year that was not audited, as is mentioned above.

They can file what they filed the previous year or file what is required for the current year. And any plan can voluntarily hire a CPA firm to do an audit whenever they like.