Form 5500 Count Methodology Changes

Blog Layout

Form 5500 Count Methodology Changes

May 30, 2023

by: Kara Graves

On February 23, 2023, the Department of Labor, IRS, and the Pension Benefit Guarantee Corporation, in conjunction with the Employee Benefits Security Administration, released requirement changes to the 2023 Form 5500, Annual Return/Report of Large Employee Benefit Plans and Form 5500-SF, Annual Return/Report of Small Employee Benefit Plans. There are many changes to the Form 5500 for 2023, one of the more critical changes relates to the method on how the participant count is calculated at the beginning of a plan year. The count is used to determine whether a plan requires an audit by an independent accountant. Typically, a benefit plan audit is required for all large plans with over 100 participants at the beginning of the plan year.

Old Rule:

Before January 1, 2023, the participant 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 currently employed and eligible for the plan regardless of whether they were participating in the plan. Under the old rule, an audit was required for a plan with 100 or more of both active employees eligible to participate and terminated vested employees with account balances. Even if a plan had less than 100 participant accounts with balances, an audit could still be required due to the eligible and not participating employees.

New Rule:

Effective January 1, 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 employees eligible to participate who have never contributed to the plan and/or received employer contributions will not be counted. As a result, some plans might be able to file as a small plan.

What’s Next?

Plan sponsors should be aware of these changes and review their plan counts closely with their third-party administrators under this new methodology for the 2023 plan year. Plans with less than 100 plan account balances as of January 1, 2023 (for calendar year end plans) will not need an audit even if they previously did under the old rules.

What does this mean for plans that are hovering around the 100 account balance mark during 2023? If your plan has 100 or more participant account balances on January 1, 2023 (calendar year end plans), an audit is still required for 2023 but there are some steps that can be taken to reduce plan participants for January 1, 2024 (next plan audit measurement date for calendar year end plans). Plan sponsors should be reviewing terminated employees with participant account balances of $5,000 or less. The plan sponsor should review with their third-party administrator the existing plan provision that allows the plan to force out terminated participants with balances of $5,000 or less. This plan provision could be utilized to reduce the participants with balances which could potentially remove the audit requirement in the future.

< Older Post Newer Post >

This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.

Should You Hire Your Kids?

By Ryan Stack • 16 May, 2024

Hiring your children can be especially advantageous if you have age-appropriate work for them to do, aligning their roles with their capabilities and interests.

Used Clean Vehicle Tax Credit: Handle with Care

By Sarah Rose Stack • 10 May, 2024

You’re probably familiar with the $7,500 federal tax credit for purchases of certain new electric, plug-in hybrid and fuel-cell vehicles. But did you know that there’s a tax credit available for used clean vehicles? It’s equal to 30% of the sale price, up to a maximum credit of $4,000. However, strict rules about which vehicles are eligible may make it difficult for many people to qualify for the credit.

Handle Your Estate Planning Documents with Care

By Sarah Rose Stack • 01 May, 2024

The family of a person who unexpectedly dies should know how to find and access the deceased’s estate planning documents. If that’s not currently the case, that person’s well-laid estate plan can be derailed. This article details the steps to take to keep family members in the loop.