Now that the October 16th Form 5500 filing deadline has passed, we can turn our attention to 2023 plan reporting, specifically the changes to Form 5500. Earlier this year, the DOL, IRS, and PBGC announced several key revisions to the Form for plan years beginning on or after January 1, 2023.
Change in Participant-Count Methodology
A large plan (generally with 100 or more participants) is required to attach an independent qualified public accountant (IQPA) audit report and related financial statements to its Form 5500. Currently, whether a plan qualifies as “large” is based on the number of employees who are eligible to participate in the plan as of the beginning of the plan year, regardless of whether all those eligible employees have elected to make contributions and have account balances. To provide some relief to plans that may have a disproportionate number of eligible employees that are not actually participating in the plan, the authorities have changed the rule so that whether the plan is “large” or “small,” for purposes of the audit requirement, would depend upon the number of participants with account balances as of the beginning of the plan year. This change means that many defined contribution plans that were required to have an audit in the past will now qualify for an exemption from the audit requirement based on the DOL’s small plan audit waiver regulation.
Schedule H Administrative Expenses
Schedule H will be updated to add new detailed categories for administrative expenses to improve fee and expense transparency. There will be specific lines for audit fees, bank or trust company fees, actuarial fees, legal fees, valuation fees, salaries, trustee fees, and expenses. Plan sponsors and service providers should be aware that this information will be publicly available and subject to scrutiny by the DOL and outside parties.
Defined Contribution Group
Consolidated Form 5500 for Defined Contribution Retirement Plan Groups implements the SECURE Act requirement that the DOL and IRS jointly develop a consolidated annual reporting option for certain groups of DC retirement plans. They include a filing option for a new type of direct filing entity called a DCG reporting arrangement and a new Schedule DCG (Individual Plan Information). DCGs are generally subject to the Form 5500 requirements for large pension plans. Large plans in a DCG arrangement and small plans not meeting the audit waiver conditions will still be subject to a separate plan-level audit by an IQPA as if they were filing separately.
Reporting by Pooled Employer Plans (PEPs) and other Multiple-Employer Plans (MEPs) includes modifications to Form 5500 to further implement SECURE Act changes that establish PEPs as a new type of retirement plan. These steps will be accomplished primarily by the new Schedule MEP (Multiple-Employer Retirement Plan Information).
Schedule R Tax Qualification Compliance Questions
Three new IRS compliance questions will be added to the Schedule R and Schedule DCG:
- Nondiscrimination testing – Does the plan satisfy the coverage and nondiscrimination tests of Internal Revenue Code sections 410(b) and 401(a)(4) by combining this plan with any other plans under the permissive aggregation rules?
- ADP testing – If this is a 401(k) plan, check all applicable boxes to indicate how the plan is intended to satisfy the nondiscrimination requirements.
- Pre-approved plan letters – If the plan sponsor is an adopter of a pre-approved plan that received a favorable IRS Opinion Letter, enter the date of the Opinion Letter.
Plan sponsors and service providers should review these changes, so they are prepared when completing and filing Form 5500. It should be noted that the authorities are currently working on broader Form 5500 changes in an effort to modernize the Form and improve data collection efforts. Updates will be provided as they become available.
Please contact us if you have questions about the information outlined above, our seasoned and experienced employee benefit plan professionals are here to help. You can also learn more about our Employee Benefit Plan Audit services by visiting our website.