Knowledge and Insights

New Retirement Plan Audit Thresholds Could Offer a Savings Opportunity

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In the world of company-sponsored benefit plans, compliance with the various regulatory requirements is a top priority of plan sponsors. For large plans, one of the most cumbersome requirements is the annual audit of the plan’s financial statements, which is required as an attachment to Form 5500. New changes from the U.S. Department of Labor (DOL), the IRS and the Pension Benefit Guaranty Corporation (PBGC) could impact your plan’s need for an audit, which will reduce administrative costs of the plan, and ultimately save your company money.

Form 5500 is an informational return used to satisfy the annual reporting requirements under Title I and Title IV of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. Historically, the audit threshold for large plans was tied to the number of eligible participants at the Plan Sponsor. The general rule was that any plan with 100 or more eligible participants would be required to file as a large plan and undergo an audit of the plan’s financial statements.

Recently, the regulatory bodies have changed the participant count methodology related to the audit threshold which will directly impact plans of various sizes. Effective for plan years beginning on or after January 1, 2023, the participant count methodology will change from total eligible participants to total participants with account balances within the plan. This count is done as of the beginning of the plan year and will determine the need for an audit of the plan’s financial statements. The DOL, the IRS and the PBGC expect this change will reduce filing costs for plans by $95 million annually.

It is important for plan administrators to understand the change in this requirement as it relates to their plans. Although the main assumption is that fewer plans will require an audit due to there being less participants with a balance as opposed to eligible participants, plans that previously did not require an audit may find that participants with a balance in the plan exceed the threshold due to individuals who have separated employment, but have not removed their funds from the plan.

This change in regulation will have varying impacts for plans that have historically hovered around the 100-participant mark, regardless of the old or new methodology. It is important to understand how your plan will be impacted and what the downstream effects on your business could be.

Mercadien’s Employee Benefit Plan Audit Group has extensive experience with plans of all sizes and structures, including 401(k), 403(b) and defined benefit pension plans, and we have worked closely with our clients to help navigate various changes over the years. Contact us today to learn more about how we can assist you and your organization with this transition and discuss how we can provide support with other audit and compliance matters related to your plan.

DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought.