The IRS Form 5500 is an annual return that is filed for most qualified retirement plans. Here are a few new items you may notice on the form for plan years that began in 2023.

Participant count has been expanded for defined contribution plans.

The large plan audit requirement is now based on the number of participants with account balances at the beginning of the plan year, rather than the total number of participants, which includes participants without balances. This change will likely reduce the number of plans that require an independent accountant’s audit report to be filed with the Form 5500. This information is reflected on the following line items:

  • Form 5500 (used by audited plans and plans with non-qualified assets):
    • Line 6g is now 6g(1) and 6g(2)
  • Form 5500-SF (the short form for plans that meet exceptions due to size and investments):
    • Line 5c is now split into 5c(1) and 5c(2)

IRS Compliance Questions have been added.

The first question asks if the plan was combined with another plan to pass coverage or non-discrimination testing. Most plans pass individually, but a plan might be combined with another plan based on ownership, business lines or if the plan sponsor maintains another qualified retirement plan.

The second question, specific to 401(k) plans, asks how the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) testing was performed. These tests compare the average deferral percentage or match percentage for the highly compensated employees (HCE) to the average percentage for the non-highly compensated employees (NHCE). Generally, this comparison is made between the current year percentages for HCEs and current or prior year percentages for NHCEs, although testing may not be necessary based on plan design or other factors, such as a plan having no HCEs.

The third question, which asks about an IRS Opinion Letter, is used to ensure that the plan document is up to date.

This information is reflected on the following line items:

  • Form 5500, Schedule R:
    • Line 21a, 21b, 22
  • Form 5500-SF:
    • Line 14a, 14b, 15
  • Form 5500-EZ (plans that cover the owners of the company and their spouses only):
    • Line 12 (the first two questions do not apply)

Administrative expenses for large plan filings have been expanded.

This change provides more detailed reporting of plan expenses—particularly those related to service providers—including fee categories related to contract administration, recordkeeping, audit fees, investment advisory and management, trustee and custodial, actuarial, legal, valuation/appraisal and other expenses. This information is reflected on the following line item:

  • Form 5500, Schedule H:
    • Part II, Line 2i

Information provided on the Form 5500 series is used by federal agencies such as the Department of Labor (DOL), Internal Revenue Service (IRS), and Pension Benefit Guarantee Corporation (PBGC) to understand plan operations, funding, and investments. It is also a source of information disclosed to plan participants through the Summary Annual Report (SAR) or Annual Funding Notice (AFN). As reporting needs change over time to adjust to shifting trends, these forms are updated to assist in painting the most accurate picture.

This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.

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