The DOL has made some changes to the financial statement audit requirement for retirement plans. Beginning for the calendar year 2023, your reporting requirements for your 401(k) plan participant count will be based upon the number of participants who have account balances in the 401(k) plan and NOT just on “eligible” employees.
Why the Changes Are Good for Small Employers
It’s a win-win. This change is intended to lower expenses for small plans and encourage startups and growing employers to offer retirement savings plans to their workers by all but eliminating the “hassle-factor.”
Reduced expenses are a result of the conditional waiver of an annual audit. While it’s still best to ensure you’re in compliance, you’re basically in the no-audit space if you have fewer than 100 participants in the retirement program. Also, you can take advantage of the simplified Form 5500 and Form 5500-SF (short form) reporting because the new rules say a plan of that size does not have to be audited by an Independent Qualified Public Accountant (IQPA.)
Again, rather than determining whether the threshold is met by counting all eligible participants or those having an account balance, the new methodology will include only the participants and their beneficiaries with account balances at the beginning of the plan year. For a calendar plan year starting January 1, 2023, filing will begin July 2024.
The DOL, IRS, and Pension Benefit Guaranty Corporation collaborated on this important move.
This FACT SHEET explains the 2023 changes to Form 5500 and Form 5500-SF. The Fact Sheet’s main points are recreated here, and acronyms are spelled out, thank goodness.
- 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 change in the participant-counting methodology for determining eligibility for simplified reporting alternatives available to small plans.
- 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 Internal Revenue Code 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.
(Source: DOL 2023 Fact Sheet.)
RETIREMENT PLANS MAKE SENSE
We have many clients who offer retirement plans to their employees. It’s such an excellent benefit! Now even smaller companies can offer this benefit without worrying about audits. Plus, the reporting forms are designed to be accessible to all levels of businesses. When the government does something to reduce costs by simplifying paperwork and lowering audit requirements, it’s a good thing. It encourages more participation and enhances companies’ desires to promote this type of plan, which will help more people navigate retirement successfully. All of society benefits.
There are many resources, instructions, and directions for all government forms. Here’s a link to the Form 5500 and 5500-SF (Short Form) instructions page.
As always, the announcements and links are wonderful, but it’s best to check with your favorite CPA (LSL CPAs, for instance) and your retirement plan advisors (such as your financial advisor, third party administrator) to make sure you’re in compliance.