Agencies Update Form 5500
Plan sponsors have watched for updates to the process of filing Form 5500 over the past three years as the Department of Labor’s (DOL’s) Employee Benefits Security Administration, the IRS, and the Pension Benefit Guaranty Corporation (“the Agencies”) released changes to the form to comply with provisions in the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE 1.0).
The Agencies’ third phase of final forms revisions are effective for plan years beginning on or after January 1, 2023. The DOL simultaneously published a final rule with an effective date of April 25, 2023, which is required to implement the Agencies’ third phase of final forms.
Participant Count Method Changes
For defined contribution plans only, the new rule changes which participants are counted when determining whether a plan is eligible for small plan reporting, including the exemption from the independent qualified public accountant (IQPA) audit requirement. Now, only participants with account balances as of the beginning of the plan year will be counted. Under existing rules, participants who are eligible to make deferrals—even if they do not elect to participate and do not have a balance in the plan—are still counted when determining whether a plan can file as a small plan. For the first plan year, the participant count for a plan’s initial filing excludes plans that have fewer than 100 participants with account balances both at the beginning of the plan year and the end of the first plan year. Conforming changes have also been made to the “80 – 120” participant transition rule instructions.
The change was driven in part by the SECURE 1.0 provision allowing long-term, part-time employees to make elective deferrals. The inclusion of long-term, part-time employees into the plan may increase the total number of participants, requiring small plan filers to transition to large plan filers. This transition could then trigger the need for IQPA audits for many plans that were formerly exempt.
Internal Revenue Code Compliance Questions
The Agencies have added three compliance questions to Form 5500 that are intended to help identify qualified retirement plans that fail to meet coverage and nondiscrimination testing requirements. All plan sponsors that permissively aggregate plans for testing purposes will need to disclose whether the plans satisfy coverage (410(b)) and nondiscrimination tests (401(a)(4)). A 401(k) plan sponsor will also need to indicate how the plan is intended to satisfy the nondiscrimination requirements for employee deferrals (401(k)(3)) and if applicable, employer matching contributions (401(m)(2)). A third question states if they have adopted a preapproved plan, they must state the date and serial number of the favorable opinion letter. This final question is designed to identify late amenders. Plan sponsors of MEPs can skip the first two questions.
Updates to Forms 5500 and 5500-SF
The Agencies also made minor adjustments throughout Forms 5500 and 5500-SF and their respective instructions to specifically address DCG reporting requirements and attachments to Schedules DCG and MEP. The revisions also include several minor notes and clarifications. For example, instructions for both Forms 5500 and 5500-SF have a new “note” indicating that any amended filings must be submitted as a complete replacement of the previously submitted filing—with all of the required schedules and attachments—through EFAST.
Future Guidance
While the majority of provisions that were included in Phases I, II, and III have been adopted in final form, there are some remaining provisions that are deferred for further development and public input as part of a more general Form 5500 improvement project listed on the DOL’s semi-annual regulatory agenda.
