80/120 Rule

This is a bit of an oddball but the question was proposed to me this morning - If a plan is still considered a small plan under the 80/120 rule, are the Plan Sponsors still eligible to receive retirement plan start up credits from the IRS if they cross over 100 participants? 

I would assume no, that the 1-100 participants for the credit is pretty black and white, but I figured I would ask here to see all your opinions.

TIA

The 80/120 rule only applies with respect to which 5500 form a plan may file, nothing else that I know of.

CuseFan is correct in pointing out that the 80/120 is used for determining whether the plan must file a 5500 versus a 5500-SF.

BPF916, the 1-100 participants for the start-up credit really is not black and white.  The count is based on the employer:

• having 100 or fewer employees (not participants)
• who had compensation of at least $5,000 (regardless of plan eligibility)
• in the preceding year (subject to an available election to have the first credit year be the year preceding the year containing the effective date of the plan)

There also is a 2 Year Grace Period where the employer is considered eligible for the credit for the 2 years following the last year the employer was eligible.

Check out all of the eligibility criteria because there are certain conditions that will disqualify an employer from taking the credit such as the employer was involved with a merger, or there are related companies with existing plans, or if the employer had a plan in the 3 years prior to the new plan.

None of this has to do with the 80/120 rule.

Among some practical ways to evaluate whether a business’s facts would meet conditions for a credit is to use Form 8881 and its Instructions.

https://www.irs.gov/pub/irs-pdf/f8881.pdf; https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit

Instead of waiting to prepare a tax return on the facts of a concluded tax year, some accounting firms can run a projection on a set of assumed facts.

7 hours ago, CuseFan said:

The 80/120 rule only applies with respect to which 5500 form a plan may file, nothing else that I know of.

Additionally, practitioners should note that the 80/120 rule is administrative and regulatory in nature.  It is NOT a statute; thus, not appropriate to assume its application extends to anything else.