It’s that time of year again – plan sponsors everywhere are gearing up for the annual Form 5500 filing, and with it comes the looming anxiety of potential audits. But before you get buried in paperwork, here’s a reminder of good news that might save you time and money.
In February 2023, the Department of Labor announced changes to the Form 5500 effective for plan years beginning on or after Jan. 1, 2023. One of the most significant changes in their revisions was the change in the threshold to determine if a plan would be required to undergo an independent audit of financial statements to be included with the filing of the Form 5500.
This means some plan sponsors could actually avoid an audit this year.
What was the change to the Form 5500?
The former participant-counting methodology to determine plan audit requirements was that if your plan had at least 100 eligible participants, your plan was considered a “large plan,” therefore requiring an audit – even if not all eligible participants actually participate in the plan.
According to the new changes, only participants with money in an account balance in the plan will count toward the 100-participant threshold. This means that the 100-particpant requirement has not gone away, but it now only applies to those with account balances at the beginning of the plan year.
This seemingly small tweak has massive implications. The Department of Labor estimates that around 20,000 plans are no longer considered “large” under the new definition, freeing them from the audit requirement.
In addition to the changes to the 100-participant threshold, plan sponsors will be able to utilize additional breakout categories for administrative fees listed on Schedule H of the Form 5500, which is meant to increase transparency around expenses.
Windham Brannon Can Help You Determine Form 5500 Requirements
While the changes in the Form 5500 filing requirements may mean some entities avoid the audit requirement, it is important to keep the following in mind:
- Not every plan qualifies: This exemption applies primarily to defined contribution plans (like 401(k)s). Other types of plans may have different audit thresholds.
- Voluntary audits still exist: Even if you as a plan sponsor are exempt, you can still choose to have an audit conducted for various reasons.
- Consult your advisor: Consult your plan administrator or your advisor to confirm your exemption status and discuss your specific audit needs.
Windham Brannon can help plan sponsors determine their audit requirements under the Form 5500 changes with confidence. For more information, reach out to your Windham Brannon advisor today, or contact Anne Morris.
