As calendar year 2023 has closed, many administrators of benefit plans are starting to think about their upcoming benefit plan audits and 5500 filing requirements. Some benefit plan administrators may be pleased to learn that due to a change in the 2023 Form 5500, an audit may no longer be required for their plan.

Under ERISA, a “large plan” is required to have an audit of the plan’s financial statements. For plan years leading up to December 31, 2022, the general rule was that those plans with 100 or more participants at the beginning of the plan year were considered large plans. The definition of a participant for purposes of determining a large plan included:

a) Those who are actively participating in the plan
b) Retired, decreased, or separated employees who still have assets in the plan
c) All eligible employees who have yet to enroll or have elected not to enter the plan

For plan years beginning on or after January 1, 2023, the participant counting methodology for determining a large plan changed. Only participants with an account balance as of the beginning of the plan year count towards the 100-participant threshold. Therefore, individuals in a) and b) above still count, but individuals in c) do not.

The U.S. Department of Labor estimates 19.4 thousand plans that were classified as large plans for 2022 will be classified as small plans for 2023, at an expected audit cost savings of $33.6 million.

Plan administrators of calendar year plans should review their 2022 Form 5500, Part II, line 6g(2), to determine the number of participants with account balances present at December 31, 2022. That should be the number of participants with account balances on January 1, 2023. If that number is below 100, the Plan does not need to file as a large plan for 2023, and there is no audit requirement. Non-calendar year plans need to perform the same analysis for the first plan year starting after January 1, 2023. Small plans still need to file a Form 5500-SF but there is no audit requirement. Plan administrators should discuss these changes and consult with their third-party administrator to determine what options the Plan has to file and whether an audit is required.

Note the 80/120 rule is still in effect, which allows a Plan to file their current year Form 5500 in the same category (large plan versus small plan) as last year as long as the participant count remains between 80 to 120. However, effective for plan years beginning on or after January 1, 2023, the participant count utilized is based on participants with account balances. 

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If you are a benefit plan administrator and know you need a benefit plan audit, or are unsure of whether an audit is required, we can assist. Please contact us at 630.954.1400 or click here.

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