Department of Labor building

DOL changes plan participant count methodology

A recent DOL rule change may mean certain plans no longer need an audit. Learn more about what changed and how it affects employee benefit plans.

The Department of Labor (DOL) recently issued final rules on changes to the 2023 Form 5500 and 5500-SF for employee benefit plans. One critical change is how the DOL will count plan participants and the count’s effect on the need for the plan to undergo an annual audit. With new requirements from the SECURE Act that may increase the number of eligible but inactive participants, the DOL’s rule change attempts to assess plan participants more accurately.

What changed?

Beginning on January 1, 2023, plans will start counting the number of eligible participants with plan balances on the first day of the plan year. Those with balances must be included in the participant count to determine whether an audit is required. Previously, plans would need to count all eligible participants regardless of their plan activity.

Who is affected?

Currently, any plan with 120 or more eligible participants requires an independent plan audit. With this new counting rule, plans may see a reduction in the participant count based on the plan’s usage by employees. For those plans already requiring an audit, if the rule change modifies the participant count below 100 participants, large plan filers would no longer need the audit but may continue to have one.

This change is beneficial for small plan 5500 filers nearing the independent audit requirement. The new counting rule allows small plan filers to continue filing as such so long as the plan stays at 120 participants or less. If a plan is below 80 participants, it must file as a small plan.

What is the benefit?

By reducing the participant count and making it more difficult to trigger the audit threshold, small plans can avoid the financial costs of a plan audit. Depending on the plan and the auditor, the savings can be several thousand dollars which may not be an insignificant percentage of the plan’s overall costs.

Additional considerations

In 2024, SECURE 2.0 allows plans to automatically roll over former employees’ accounts if the balance is $7,000 or less. This bump from $5,000 may increase the number of rollovers and reduce the participant count even more.

The SECURE Act also implements eligibility for certain long-term, part-time employees. It is expected that many of these newly eligible employees may not wish to participate in the plan. Under the old counting rules, they would be considered a participant. With the new counting rule, they will only be counted towards the audit requirement if they have an account balance with the plan.

In summary

The DOL’s latest rule change could help reduce plan costs for retirement plans which are currently required to have an audit. Contact Brad Bechtel using the information below to learn more about your plan’s compliance requirements.

Brad Bechtel

Senior Vice President
Employee Benefit Services

Brad Bechtel leads AGH’s employee benefit services (EBS) division, which serves clients nationwide. EBS is one of the region's largest providers of retirement plan recordkeeping services for daily valuation plans. The division provides consulting services to clients on employee benefit plans, including plan design, implementation, operation, fiduciary due diligence, compliance, and through affiliate AGH Wealth Management, discretionary and non-discretionary investment fiduciary services, investment advisory services and employee education.

Brad is experienced in executive compensation, including non-qualified, phantom stock, top hat and excess benefit plans, as well as other deferred compensation approaches. He has consulted for numerous Fortune 500 corporations on investment management and fiduciary due diligence. He also provides search and selection due diligence consulting services for companies seeking new investment and recordkeeping providers for their qualified plans. Brad is a registered investment advisor who holds Series 7, 24 and 66 FINRA registrations, and he is a member of the American Society of Pension Professionals & Actuaries.

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