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Changes to the 2023 Form 5500

The Department of Labor (DOL) released the final changes to Form 5500 relating to the September 2021 notice of proposed form revisions (NPFR) to amend the Form 5500.  The changes fall into seven major categories.  These changes are effective for plan years beginning on or after January 1, 2023 and will be incorporated into the 2023 Form 5500.

As a reminder, the Form 5500 provides the DOL, Internal Revenue Service and the Pension Benefit Guaranty Corporation with information about a retirement plan’s operations, qualifications, financial condition, and compliance with government regulations.

Below, we review some of the key changes to Form 5500 and what the adjustments are.

 

Are You a Large Plan or a Small Plan? The Rules Have Changed

 

Historically, determining whether your plan was “large” versus “small” was based on the number of eligible participants in your plan. If your plan had at least 100 eligible participants on the first day of the plan year, you were considered a large plan—regardless of how many participants had accounts or elected to participate in the plan.

The DOL’s recent changes to Form 5500 redefine large plans by the number of participants with account balances on the first day of the plan year. If your plan has at least 100 participants with active accounts, then you are a large plan, and an annual audit is required.  (Note that this provision only applies to defined contribution plans and is in effect for plan years that begin on or after January 1, 2023.)

This provision will significantly change the threshold for the status of large versus small plans. The DOL estimates 19,500 large plans will no longer be subject to the annual audit requirement relating to this participant-count methodology change.

While this change is likely good news for many plan sponsors, there are some potential issues. For example, a failed compliance test or the allocation of forfeitures could push plans over the 100-participant threshold. If a plan fails the Actual Deferral Percentage or the Actual Contribution Percentage test, participants who closed out their accounts may need to be reinstated for reimbursement purposes. To avoid this issue, plan sponsors should carefully review their plan documents to determine whether they are able to “push out” participants with account balances under $5,000.

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