By: Saul Jimenez
Key Takeaways:
- Plan sponsors for workplace retirement plans will find changes to the Form 5500 filing requirements for the 2023 plan year, including an updated definition for participant count that can help employers avoid or forestall the need for an independent audit of their plan.
- The change in participant count methodology is expected to reduce expenses for smaller plans and incentivize small employers to offer workplace retirement savings plans.
- Additional changes include a consolidated Form 5500 reporting option, improved MEP/PEP reporting, a breakout of administrative expenses, improved financial/funding reporting by PBGC-covered defined benefit plans, selected IRC compliance questions to improve oversight/compliance of tax-qualified plans, and technical/conforming changes.
- Plan sponsors should consider how these changes may affect their retirement plan in preparation for their 2024 filing; KRD advisors are available to answer any questions.
Workplace retirement plan sponsors will find several changes in the Form 5500 reporting requirements for the 2023 plan year, including one that could help many employers avoid or forestall the need for an independent audit of their plan.
Under the new reporting rules, plan sponsors will calculate their participant counts differently, counting only employees or former employees who have account balances. Previously, a “participant” was defined as any employee who was eligible to make salary deferrals to a workplace plan, whether or not they actually did so.
Since plans are required to obtain an annual independent audit once they cross the “large plan” threshold of 100 or more participants, the new participant count definition will help many smaller businesses lower their counts and save the cost of an audit.
The new definition of a participant is among several rule changes related to the Form 5500 that are projected to reduce filing costs for employee benefit plans by $95 million annually, according to the U.S. Department of Labor (DOL).
The change in participant count methodology was intended to reduce expenses for small plans and encourage more small employers to offer workplace retirement savings plans to their employees.
The Form 5500 is an information return filed annually by plan sponsors to satisfy reporting requirements under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC) . Numerous changes were made to the form by the SECURE Act of 2019 and its sequel, the SECURE Act 2.0 of 2022. (SECURE stands for Setting Every Community Up for Retirement Enhancement.) The most recent changes to the Form 5500 are effective for filings made for plan years beginning on or after January 1, 2023.
Additional notable changes to the Form 5500 include:
- A consolidated Form 5500 reporting option for certain groups of defined contribution retirement plans – defined contribution group (DCG) reporting arrangements.
- Improved reporting by multiple-employer plans (MEPs), including pooled employer plans (PEPs).
- A breakout of reporting of administrative expenses paid by the plan on a plan’s financial statements.
- Further improvements in financial and funding reporting by PBGC-covered defined benefit plans.
- The addition of selected IRC compliance questions to improve tax oversight and compliance of tax-qualified retirement plans.
- Technical and conforming changes as part of the annual rollover of forms and instructions.
For most plan sponsors, the changes in the Form 5500 are something they will have to deal with in preparation for their 2024 filing. If you have questions about how the changes in the Form 5500 will affect your retirement plan and the time it will take to complete the Form 5500, contact your KRD advisor.
