New Form 5500 Guidance: DOL Announces Changes to Calculating Plan Audit Threshold

Updated on: April 17, 2024

Authored by Jen Amato | Director, Audit

On February 23, 2023, the Department of Labor, IRS, and Pension Benefit Guarantee Corporation, in conjunction with the Employee Benefits Security Administration, released requirement changes for the 2023 Form 5500, Annual Return/Report on Employee Benefit Plan and Form 5500-SF, Annual Return/Report of Small Employee Benefit Plan. While there are many changes to Form 5500 for 2023, one of the more notable changes relates to the method by which the participant count is calculated at the beginning of a plan year. This count is used to determine whether an audit by an independent accountant is considered necessary.

Employee Benefit Plan Audit Rule Before 2023

Generally, an employee benefit plan audit is required for all large benefit plans with over 100 participants at the beginning of the plan year. Before 2023, this count included both active employees eligible to participate and terminated vested employees with balances still in the plan. Using this calculation method, plans needed to include all employees that were currently employed and eligible for the plan, whether or not they were participating in the plan and receiving benefits. Due to this stipulation, even if a plan had less than 100 participant accounts with balances, it could still have required an audit.

Form 5500 Update for Tax Years 2023 and Beyond

Beginning in 2023, plan sponsors will only need to consider participants (active and terminated) with account balances when calculating the number of participants at the beginning of the plan year. This means that those active eligible participants who have never contributed to the plan and/or received employer contributions will not be counted. As a result, some plans could be able to claim the small plan audit exemption for plan years beginning in 2023, even if they previously needed to be audited.

This new guidance for Form 5500 may present cost savings for plans with traditionally low participation, as it could eliminate the need for an audit.

Next Steps for Plan Sponsors

Plan sponsors should consult with their recordkeeper and fiduciary consultant to determine whether this change to Form 5500 and any other changes to the instructions will affect their plan and audit requirements for 2023 and beyond.

If you have questions about the changes or if you need help with your employee benefit plan audit, please get in touch with our team.

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