Form 5500: Participant Count?
Retirement plan sponsors are encountering some confusion about the Department of Labor’s updated filing rules for Form 5500. Specifically, a question has arisen about how participants are counted to determine whether or not an independent audit is needed. Read on for guidance, including implementation timing for the updated protocols.
Filing Rules for 2023 Plan Year
Experts at the National Association of Plan Advisors (NAPA) clarify the timing for the shift in how plan participants are counted, noting: “The new Form 5500 filing rules is that they pertain to the 2023 plan year filing, which will be done in 2024. Plan sponsors must follow the current rules for the 2022 plan year filing.” When the new protocol becomes effective, it represents good news for small businesses and their employees:
The DOL requires sponsors of employee benefit plans subject to the annual Form 5500 series of returns…to include an audit report from an independent qualified public accountant (IQPA). There is an exception to this requirement for “small plans” (i.e., those with fewer than 100 participants at the beginning of the plan year) (DOL Reg. 2520.104-46). The current rules count individuals who are eligible to participate even if they have not elected to participate.… For plan years beginning on or after Jan. 1, 2023, participant count for the audit waiver will be based on the number of participants with account balances at the beginning of the plan year. This change is intended to reduce the number of plans that need to have an audit, lower expenses for small plans and encourage more small employers to offer workplace retirement savings plans to their employees.
Learn more about the DOL’s updated regulations right here: Annual Reporting and Disclosure. Keep in mind that audit waivers are possible under both the current and updated protocols, as NAPA points out: “If the number of participants covered under the plan as of the beginning of the plan year is between 80 and 120, and a small plan annual report was filed for the prior year, the plan administrator may elect to continue to file as a small plan and, therefore, qualify for the audit waiver.”
Why Is Form 5500 So Important?
Annual submission of Form 5500 is how retirement plan sponsors provide both the DOL and IRS with information on how the plan is doing; errors and omissions related to Form 5500 are a fast track to investigations and audits from either or both entities. While the Department of Labor oversees compliance with ERISA, the IRS polices the tax code. Both rely on Form 5500 as a means of identifying potential compliance issues—and both agencies have increased the penalties for delays and oversights related to Form 5500. For example, a common compliance trigger related to the filing of Form 5500 is failure to have an up to date ERISA Fidelity Bond to protect the assets of the retirement plan from theft. ERISA bonds can only be obtained from a surety listed by the US Department of Treasury. That’s why plan sponsors across the country trust leading national ERISA bond provider, Colonial Surety. Uniquely, Colonial includes retroactive ERISA fidelity bond coverage for years when the plan was not adequately covered. Additionally, plan sponsors can opt for cost-saving multi-year coverage, ensuring the ERISA bond is Department of Labor compliant for the life of its term.
It’s critical for plan sponsors to pay attention to the annual filing of Form 5500, and not merely sign off on it. As legal experts from Groom Law Group and CAPTRUST point out:“Form 5500 is filed under penalty of perjury, which means that anyone signing should, at a minimum, review the form at a high level to be sure that nothing in the form is obviously inaccurate.” Plan Sponsor provides this reminder that outsourcing plan services never releases the employer from responsibilities to the plan: “Note that the plan document likely assigns many responsibilities to the employer, so you should be prepared to carry out these responsibilities. Most importantly, the employer is often designated as a fiduciary under the plan, which includes a myriad of responsibilities that go well beyond filling the 5500 form and apply to retirement plans both large and small.”
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