Recent changes by the U.S. Department of Labor (“DOL”) have redefined what constitutes “large plans” in the world of employee benefit plans. This shift is based on the participant counting methodology for determining eligibility for simplified reporting alternatives available to “small plans” (generally fewer than 100 participants) at the beginning of the plan year. We’re breaking it down below.
Do you know about the new electronic filing requirements for 2024? We've got a guide for you here.
The Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code, subject to exemptions, generally require employee benefit plans to file annual returns/reports about, among other things, the financial condition and operations of the plan.
Plans can generally satisfy these requirements by filing a Form 5500 Annual Return/Report of Employee Benefit Plan or, if eligible, a Form 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan, together with any required schedules and attachments, in accordance with their instructions.
Understanding Recent Changes
The DOL redefined "large plans" based on the number of participants, including beneficiaries, with account balances at the start of the plan year, rather than the old methodology of counting employees who are eligible to participate, even if they have not elected to participate and do not have an account balance in the plan. This change is intended to reduce expenses and encourage more small employers to offer workplace retirement savings plans to their employees.
If your plan has at least 100 participants, including beneficiaries, with account balances at the beginning of the plan year, you're considered a "large plan," and that means you will file Form 5500 and you will need an audit conducted by an independent qualified public accountant.
If the Plan has fewer than 100 participants, including beneficiaries, your plan will generally be considered a “small plan”, file Form 5500-SF, and require no audit. This change also effects the short-year filing rule and the “80-120” rule which permits a plan to file the same form (5500-SF or 5500) it filed in the prior year.
These new changes are effective for plan years that begin on or after January 1, 2023. Thanks to this new rule, about 20,000 plans that used to be "large plans" won't need an annual audit anymore.
ERISA Section 103(a)(3)(C) Audits for a Plan That Does Not Require an Audit
Now, here's the interesting part. Imagine you're a plan sponsor with a plan that doesn't require an audit anymore, but you still want one for your peace of mind or because you believe the plan will soon require an audit. This situation has raised a question about whether auditors can conduct an ERISA Section 103(a)(3)(C) audit when it's not mandatory.
In most cases, an auditor may accept an ERISA Section 103(a)(3)(C) audit engagement when no requirement for such audit exists, provided there is no management-imposed scope limitation on the engagement, except as permitted by the DOL's Field Assistance Bulletin No. 2009-02, Annual Reporting Requirements for 403(b) Plans.
While the DOL has not issued formal, authoritative guidance, Michael Auerbach, Chief Accountant at the DOL's Office of the Chief Accountant, spoke about it during a May 10, 2023, Employee Benefit Plan Town Hall session. He said he was not aware of any rule precluding a plan from having an ERISA Section 103(a)(3)(C) audit just because it's not mandatory.
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