You Can Count On Me…But Check Your Math When Counting Participants for the 5500 Audit Rule!

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by Becky Achten

Bruno Mars may be crooning “Count on me,” but make sure you don’t overcount your retirement plan participants! New rules may allow you to leave some employees out of the count, which could save you the expense of the annual audit.

If your retirement plan is considered “large” – generally 100 or more participants – you’re probably in the middle of the Department of Labor required annual independent audit of the financial statements that must accompany the Form 5500. There are a few exceptions to the audit requirement – plans that have less than 100 participants at the beginning of the year and those with between 80 and 120 who filed as a small plan in the prior year. If your plan is just over that 100-participant level, there may be relief on the horizon from the required audit and another reason to keep track of those separated participants.

The definition of “participant” for purposes of the Form 5500 and determining filing status includes:

  • Active Participants – those who are currently employed and eligible for the plan – even if they aren’t participating in the Plan;
  • Retired or separated participants receiving or entitled to receive benefits; and
  • Beneficiaries of deceased participants receiving or entitled to receive benefits.

For plan years beginning on or after January 1, 2023, (Form 5500 generally due in 2024), the determination of participant count will be based only on those participants with account balances at the beginning of the year. You will no longer need to include eligible individuals who aren’t participating or receiving contributions.

In addition, beginning in 2024, the cash out limit for small balances that permits Plans to make lump sum or direct rollover distributions without participant consent is increasing from $5,000 to $7,000. This may provide an opportunity for Plans with a large number of terminated participant balances to reduce the number of account balances in the Plan.

These changes are intended to reduce costs for smaller plans by eliminating the requirement for an independent audit and reducing the number of balances that need to be maintained within the Plan. Take this opportunity to review your terminated participant account balances and track those folks down now!