Audit Requirement Change for Employee Benefit Plans

The Department of Labor released its Fact Sheet which announced changes to the Form 5500 Annual Return/Report of Employee Benefit Plan and Form 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. These changes will be effective for plan years beginning on or after January 1, 2023.

New Participant Count Methodology

The biggest change includes a new participant count methodology for determining eligibility for simplified reporting options available to small plans. This significantly impacts the evaluation of an audit requirement employee benefit plans.

Under the current methodology, defined contribution plans with fewer than 100 eligible participants at the beginning of the plan year are generally exempt from attaching audited financial statements to the Form 5500. Essentially, an audit is required if a plan has 100 or more participants that are eligible to participate in the plan, regardless of how many employees are actively participating.

The new methodology counts participants based on participants with account balances at the beginning of the plan year which is reflected in the 2023 Form 5500. This is intended to reduce the number of large plans and therefore reduce the number of plans subject to an audit. However, a plan can still voluntarily elect to have an audit performed.

Your Employee Benefit and Retirement Plan Audit

Employee benefit and retirement plan audits can be complex and multi-faceted. The compliance criteria and regulatory issues can lead to big headaches if not carefully considered. If you have questions about what these changes mean for your organization, we can help.