Employee benefit plans play a crucial role in providing retirement and other benefits to employees. These plans are subject to specific reporting regulations, including filing the IRS Form 5500. Recently, there have been significant changes to Form 5500 and its instructions that will affect the audit requirements for many small plan sponsors.

Understanding the Current Audit Requirements

Under the existing guidelines, determining whether a plan qualifies as a large or small plan filer is primarily based on the total participant count at the beginning of the plan year. A plan with more than 100 participants, regardless of whether they have elected to participate or have an account balance, is considered a large plan. Conversely, a plan with fewer than 100 participants is a small plan.

Large plan filers are required to file Form 5500 and attach an audited financial statement prepared by an independent qualified auditor. On the other hand, qualifying small plans are allowed to file Form 5500-SF, a simplified version of the form that does not require an audit.

Changes to Participant-Counting Methodology

One of the key changes to Form 5500 is the participant-counting methodology for determining plan audit requirements. Under the new guidance, effective for plan years beginning on or after January 1, 2023, the participant count will only include participants with account balances as of the first day of the plan year. This means that eligible participants who are not actively contributing or do not have an account balance will no longer be considered in the participant count.

This change is expected to significantly impact the audit requirements for employee benefit plans, especially for defined contribution plans such as 401(k) and 403(b) plans. For example, if a plan had 150 eligible participants, but only 75 had account balances at the beginning of the plan year, the plan would not be subject to the audit requirement for that year.

Cost Savings and Reduced Audit Requirements

The change in participant-counting methodology is anticipated to reduce the number of employee benefit plans requiring an annual audit. Based on the 2020 Form 5500 filings statistics, the Department of Labor (DOL) estimates that thousands of plans will no longer require an audit beginning with the 2023 annual filing, resulting in cost savings of over $30 million for small benefit plans nationwide.

This change is particularly beneficial for small plan sponsors who may find the cost of an audit burdensome. By reducing the audit requirements, plan sponsors can allocate their resources more efficiently, allowing them to focus on providing quality employee benefits.

Additional Changes to Form 5500

In addition to the changes in the participant-counting methodology, the revised Form 5500 and its instructions introduce several other modifications. These changes aim to enhance transparency, improve reporting, and streamline the filing process for employee benefit plans.

Breakout of Administrative Expenses on Schedule H

The new instructions require plan sponsors to provide a more detailed breakout of administrative expenses paid during the plan year on Schedule H of Form 5500. This additional reporting will help increase transparency of fees and expenses to beneficiaries, participants, and other users of the plan's financial information.

Consolidated Form 5500 for Defined Contribution Retirement Plan Groups

Certain groups of defined contribution retirement plans will have the option to file a consolidated Form 5500 as a new Direct Filing Entity called a "DCG" (Defined Contribution Retirement Plan Group). These DCGs will generally be subject to the same reporting requirements as other large plans. However, each plan within the DCG will still be subject to a separate audit at the plan level by an independent qualified public accountant.

Improved Reporting for Pooled Employer Plans (PEP) and Multiple Employer Plans (MEP)

The revised Form 5500 includes improved reporting requirements for Pooled Employer Plans (PEP) and Multiple Employer Plans (MEP). These changes aim to enhance the accuracy and completeness of reporting for these types of plans, ensuring better compliance and oversight.

Implications for Plan Sponsors

The revised participant-counting methodology, in particular, offers cost savings to plan sponsors by reducing the number of plans requiring an annual audit. This change aligns with the goal of promoting efficiency and reducing administrative burdens.

However, it's crucial to stay informed of and compliant with the updated reporting requirements. Working with knowledgeable benefit plan auditors and consultants can help plan sponsors navigate these changes, ensure accurate reporting, and maintain compliance with the Department of Labor, IRS, and ERISA rules and regulations.

Also, a pooled employer plan (PEP) may be a beneficial option for your company’s retirement plan. Contact us to learn more about how our team can help you find a plan that best fits your needs.

• Positivity, Includer, Maximizer, Harmony, Consistency

Tom Helligso

Audit Shareholder

Tom Helligso, Audit Shareholder, began his career in 1994. As leader of the employee benefit plan audit practice since 2005, he has established himself as a key figure in assurance services. 

Specializing in assurance and financial reporting, Tom serves clients across the agribusiness, technology, manufacturing, and service industries, with particular expertise in employee benefit plan audits. He provides comprehensive audit solutions while fostering a collaborative environment. Tom's dedication to professional excellence shows in his service on the GAAP and Independence committees, ensuring consistent quality across all engagements. 

 

At Lutz, clients value Tom for his unwavering attention to detail and consistent delivery. His positive, inclusive leadership style, combined with his dedication to maintaining the highest professional standards, has earned him the confidence of both clients and colleagues. 

 

Tom lives in Elkhorn, NE, with his daughter, Piper, and has two adult sons, Brody and Hogan. Outside the office, Tom is active in his church, Brookside Elkhorn, and has been an adult leader of a youth group through Campus Life/Youth for Christ for many years. Tom can also be found traveling the country for his children’s activities, including college lacrosse, college baseball, competitive ice skating, and dance. 

402.827.2066

thelligso@lutz.us

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• Harmony, Responsibility, Deliberative, Achiever, Relator

Kelly Martinson

Tax Shareholder

Kelly Martinson, Tax Shareholder, began her career in 1994. She has established herself as a leader in the profession, recently serving as chair of the board of directors for the Nebraska Society of CPAs, demonstrating her commitment to advancing the accounting field.

Drawing on her deep understanding of both tax and employee benefit plan rules, Kelly helps clients build strong financial foundations that support their goals. She thrives on making sense of complex tax situations and designing benefit plan strategies that work in harmony with clients' broader financial picture. Kelly finds fulfillment in breaking down complicated concepts into actionable steps that empower her clients to make confident decisions about their future.

 

At Lutz, Kelly plays her position by seeing beyond just the numbers to understand how each piece of a client's financial life fits together. Her ability to connect tax planning with retirement and benefit strategies, while maintaining technical excellence, has made her a trusted advisor for clients.

 

Kelly lives in Bennington, NE, with her husband, Russell. Outside the office, she enjoys Pilates, golfing, and watching Husker volleyball.

402.496.8800

kmartinson@lutz.us

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