In February 2023, the IRS, Department of Labor, and Pension Benefit Guaranty Corporation released changes to the 2023 Forms 5500 and 5500-SF for plan years beginning on or after January 1, 2023. Of the changes made, the one that will be the most impactful is the change in the participant-counting methodology for defined contribution retirement plans.
Traditionally for 5500 reporting purposes retirement plans are determined to be either “small” or “large” plans. “Small plans” are eligible for simplified reporting while “large plans” are subject to additional reporting including an annual audit requirement. Prior to the change, “Large plans” were defined as retirement plans with 100 or more eligible participants as of the first day of the plan year. This meant that eligible employees regardless of if they had an account balance in the retirement plan were included in the count. There is an exception to the rule called the 80-120 rule, which allowed plans with 120 or fewer participants as of the first day of the plan year to continue to file as a “small plan” if they were a “small plan” in the previous year.
Under the new participant-counting method only plans with 100 or more participants with an account balance will be considered a “large plan”. This means if a participant is eligible for the plan but doesn’t have an account balance, they will no longer be counted. This change in participant-counting methodology will reduce the number of plans that require an annual audit, thus saving those plans and/or plans sponsors the annual cost of the audit.
Other changes to the 2023 Forms 5500 and 5500-SF are as follows:
- Consolidated Form 5500 for Defined Contribution Retirement Plan groups
- Additional break out of administrative expenses on Schedule H of the 5500
- Addition of new compliance questions
- Changes to the financial and funding reporting for defined benefit plans
- New Schedule MEP to assist in reporting for Pooled Employer Plans (PEPs) and Multiple Employer Plans (MEPs)
If you have any questions on the changes, please reach out to Nicole Brown or Cole Hegstad at SDK and we would be happy to assist you!