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Changes to IRS Form 5500 May Impact Your Employee Benefit Plan’s Audit Requirement


The U.S. Department of Labor (DOL), Internal Revenue Service and the Pension Benefit Guaranty Corporation (PBGC) recently released changes to the 2023 IRS Form 5500 and its instructions that will impact the audit requirement for many small plan sponsors. Under current guidelines, the determination of whether an employee benefit plan qualifies as a large or small plan filer is based on the total participant count as of the beginning of the plan year. The total participant count currently includes 1) active participants with account balances, 2) terminated participants with account balances and 3) all employees that are eligible to participate but are not actively contributing and do not have an account balance in the plan. Under the newly issued guidelines, for plan years beginning January 1, 2023, or later, with annual filings completed in 2024, the counting methodology is set to change to only include active participants with account balances.

The beginning-of-year participant count is used to determine whether an employee benefit plan is considered a large plan filer or a small plan filer for DOL annual filings. Generally, plans with a participant count of 100 or more are considered large plans, while plans with less than 100 participants are considered small plans. Large plan filers are required to file Form 5500, whereas small plans are allowed to file Form 5500-SF, a simpler and less costly filing. In most cases, large plans filing Form 5500 are required to also attach an audited financial statement with an opinion issued by an independent qualified auditor. Plans filing Form 5500-SF are not required to attach an audited financial statement with their filing.

This change in participant counting methodology is expected to reduce the number of employee benefit plans needing to have an annual audit conducted, especially for 401(k) and 403(b) defined contribution plans. Based on 2020’s Form 5500 filing statistics, the DOL anticipates that thousands of plans will no longer need an audit beginning with its 2023 annual filing (completed in 2024), resulting in cost savings of over $30,000,000 for small benefit plans across the country.

Additional changes to Form 5500 and its instructions for 2023 include:

      • A consolidated Form 5500 reporting option for certain groups of defined contribution retirement plans;
      • Improved reporting for pooled employer plans (PEP) and other multiple employer plans (MEP);
      • A breakout of reporting on administrative expenses paid by the plan on the plan’s financial statements;
      • Further improvements in financial and funding reporting by PBGC-covered defined benefit plans;
      • Technical and conforming changes as part of the annual rollover of forms and instructions.

For more information or if you have questions on the changes to Form 5500, contact Benjamin A. Sumner, CPA, at (315) 472-9127 or via email at bsumner@dmcpas.com. You can also find a detailed summary of the annual reporting changes in a fact sheet posted on the DOL’s website (linked here).

Contributing author: Benjamin A. Sumner, CPA, is an audit partner with over 13 years of experience providing auditing, accounting and advisory services to a wide variety of privately-held businesses.