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DOL Changes Counting Method for Plan Participants on Form 5500

June 12, 2023

Are you required to have an audit of your retirement plan? The answer lies in the plan’s eligible participant count as of the first day of the plan year. Here’s what you should know.

Attention plan sponsors…are you up to speed on the changes to the Form 5500? Check out our blog, DOL Makes Changes to Form 5500. Under these changes, the participant count methodology for retirement plans has been updated. Here are the details.

What is the 80/120 rule?

Typically, an audit requirement is triggered when a retirement plan reaches 100 eligible participants, which is considered a “large” plan.

The 80/120 rule is an exception to this general rule. The 80/120 rule allows plans with between 80 and 120 participants to file as a “small” plan (no audit requirement) if they filed as such in the previous year. This may allow a retirement plan to avoid the external audit requirement required of a large plan.

What has changed?

A recent change in regulations has been enacted to alleviate a reporting burden for small plans (typically plans with fewer than 100 participants).

Plan years beginning on or after January 1, 2023 will be subject to a new counting methodology for determining the participant count. The new methodology will be based on the number of participants with account balances at the beginning of the plan year only (instead of the current method which includes eligible individuals who have not elected to participate and do not have an account).

Important to note:

Although a plan may no longer need an audit, they still can have one if considered necessary by the governing body of the plan, such as if the plan has had compliance or audit findings in the past.

When is this change effective?

The change is effective for plan years beginning on or after January 1, 2023.

Any exceptions?

This change in participant count methodology is only applicable to small plans and there has been no change in the implementation of the 80/120 rule. A plan may still qualify for the audit waiver for both 2022 and 2023 if there are more than 100 participants. If the number of participants as of the beginning of the plan year is between 80 and 120 and a small plan annual report was filed for the previous year, the plan admin can elect to continue to file as a small plan.

Questions? Contact us.

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