Form 5500 is an annual report filed by employee benefit plans with the U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS). The form is used to disclose financial and other information about the plan, including its operations and investments. The DOL, IRS, and PBGC recently released a notice announcing the final forms and modifications of the instructions utilized for the annual reporting of employee benefit plans in the Federal Register.
The document particularly impacts Form 5500, Annual Return/Report of Employee Benefit Plan, and Form 5500–SF, Short Form Annual Return/Report of Small Employee Benefit Plan, and is effective for plan years beginning on or after January 1, 2023. We highlight some of the most significant changes below.
Change in Participant-Count Methodology for Small Plan Simplified Reporting Options
Most significant among these latest changes is the method of counting participants to determine the 100-participant threshold for small plan simplified reporting.
A benefit of having fewer than 100 participants in a plan is that simplified Form 5500 reporting can be utilized, most notably that a plan is not required to be audited by an independent qualified public accountant (“IQPA”). Previously, all employees eligible to participate in the plan were included in the count to determine whether the plan met the threshold. Those who elected not to participate or did not have an account in the plan were previously included in the count.
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However, the rule change significantly impacts whether a benefit plan is required to receive an annual audit. As a result, the new rule only counts the number of beneficiaries and participants that have account balances at the start of the plan year. According to the DOL, this change is expected to reduce the number of plans required to receive an annual audit by almost 19,500 filings.
Updates to Schedules
- Schedule DCG
- A new consolidated Form 5500 reporting option for a defined contribution group (DCG) will be created called a DCG reporting arrangement. Additionally, a new Schedule DCG was created for reporting individual plan information.
- Schedule MEP
- A new Schedule MEP (Multiple-Employer Pension Plan Information) was introduced to report MEP-specific information, such as participating employer and aggregate account information.
- Schedule H Breakout of Administrative Expenses
- The notice proposes adding breakout categories to the “Administrative Expenses” section of Schedule H (Financial Information) to enhance fee and expense transparency.
- The final forms have been updated with additional revisions that build upon the 2022 changes. The changes include modifications to Schedule R and Schedule SB, aimed at improving financial and funding reporting for PBGC-covered defined benefit plans.
- Certain Code compliance questions have been added to the final forms revisions to strengthen tax oversight and ensure the compliance of tax-qualified retirement plans.
Overall, the changes to Form 5500 are intended to provide more detailed and comprehensive information about employee benefit plans, improve transparency, and facilitate compliance with applicable laws and regulations. Plan sponsors and administrators should be aware of these changes and prepare accordingly to ensure timely and accurate filing of the Form 5500 as well as any potential change in audit requirements for their plan.
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