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New Rules For Audit Determination Of 401(k) Plans

Federal agencies have announced a series of revisions to Form 5500 Annual Return/Report and Form 5500-SF, Short Form. These changes are designed primarily to implement the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) and SECURE Act 2.0 and make other improvements. The changes could reduce filing costs by an estimated $95 million annually.

Among many approved changes, the DOL has proposed a difference in the participant-counting methodology for determining whether a plan is under the 100-participant threshold to qualify for simplified Form 5500 reporting. Effective for plan years beginning on or after January 1, 2023, only participants (both terminated and active) with a balance as of the beginning of the plan year will count towards the 100-participant threshold to trigger an audit. Under current rules, employees who are eligible but not contributing to the plan would be included in this calculation, forcing many plan sponsors to undergo expensive and more complex Form 5500 reporting. Please note that for the 2022 plan year, the 100-participant threshold is still determined based on the total number of participants at the beginning of the plan year, including those who are eligible to have contributions made to the plan—even if they have not elected to participate and have no account balance.

If you have any questions or would like to speak with one of our retirement plan consultants or CPA resources, please contact Aaron Siekmann.

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