Audit Requirement

The Department of Labor (DOL) revised the methodology for determining if a Plan is considered a large plan or a small plan for 5500 purposes. This distinction is critical for Form 5500 purposes. In order for a Plan to be considered a “Large Plan,” it must have more than 100 participants at the end of Plan Year. Large Plans are required to be audited by an independent qualified public accountant. The audit opinion must be attached to the Form 5500 filing, in order for the filing to be considered complete.

Change in Methodology

For the 2023 Plan Year, the methodology for counting participants has changed. Employees are counted as “participants” if they have an account balance at the end of the Plan Year. Prior to this change, a participant was an employee who was “eligible” for the Plan; regardless of whether or not they actually participated in the Plan.

Asa result of this change, many more plans may be considered to be small plans than in prior years. There are complex rules about switching between filing as a large plan as opposed to a small plan. Plan audits can be an expensive proposition, so transitioning to a small plan could save a sponsor a significant amount of money.

The 80-120 Rule

This rule allows plans that may go slightly above 100 participants to continue to file the same form as the prior year. Once a formerly small plan has more than 120 participants, it is required to be filed as a large plan. A large plan that drops below 100 participants may continue to file as a large plan, should they choose to, until the count drops to below 80 participants. Plans with participant counts between eighty (80) and one hundred and twenty (120) participants can file the same form as the previous year if they choose to do so.

If you are uncertain of these changes or SECURE 2.0 requirements, refer to our SECURE Act resources or contact your Definiti Retirement Plan Consultant. If Definiti isn’t one of your plan’s trusted providers today, let’s talk. Call 1-888-912-3653 or email salessupport@definiti.com.

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This material has been prepared for informational purposes only, and is not intended to provide legal, tax, or investment advice. Any tax-related discussion contained in this material is not intended or written to be used, and cannot be used, for (i) avoiding any tax penalties, or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. This material does not provide fiduciary recommendations concerning investments or investment management; it is not individualized to the needs of any specific benefit plan or retirement investor, nor is it directed to any recipient in connection with a specific investment or investment management decision. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this material.