Benefit Insights | Summer 2022

A NO N - T E C HN I C A L RE V IE W OF QUA L IF IE D R ETIR EM ENT PLA N LEGIS LATION & A D M INISTR ATI VE I SSU ES Form 5500 Insights Every year, most employers file a Form 5500 for each qualified plan that they sponsor. The purpose of the Form 5500 is to provide required information to the Department of Labor (DOL), but it can also provide valuable insight to the plan sponsor. The Form 5500 has several “types” and the type of form you file will vary based on the size of your plan. The Form 5500-SF is generally for small plans with under 100 participants and the Form 5500, which requires a number of attached schedules, is generally for large plans with 100 or more participants. Additionally, the full Form 5500 requires an accountant’s audit. In some cases, even small plans may be required to file a Form 5500 if the plan assets include employer securities or if the plan is considered a multi-employer or pooled employer plan. There is an even briefer version of the 5500 series called the 5500-EZ. This version of the 5500 is typically filed by one-participant plans (usually the self-employed (and spouse) or one or more partners (and spouses)). The following are examples of the useful information provided on the Form 5500-SF or Form 5500: PARTICIPANT COUNT Small plan vs large plan „ Whether your plan is considered a large or small plan depends on the number of eligible participants at the beginning of the plan year. This includes terminated participants with an account balance as well as active participants without a balance. As your count gets closer to 100 participants, you will need to plan for the additional work and expense of becoming a large plan, which is when your Form 5500 requires an accountant’s audit be attached when filed. „ If you file a Form 5500-SF as a small plan, the 80-120 rule will apply. This means that if your participant count SUMMER 2022 remains under 120, you can continue to file Form 5500-SF as a small plan and do not require an audit. Once your beginning of the plan year count reaches 121, you will then be considered a large plan with an audit requirement. „ If you are a brand-new plan, though, and have over 100 participants on the first day of the first plan year, the 80-120 rule does not apply and you will require an audit. The 80-120 rule allows you to file as you did the prior year, and new plans do not have a filing for the prior year. Eligible participants vs active participants with an account balance „ In addition to tracking eligible participants, the number of active participants with an account balance is also listed. This shows you how many of your eligible active participants have a $0 balance. „ If your plan provides for your participants to contribute 401k deferrals, automatic enrollment is an option to increase participation. In this case they must opt out, rather than opt in. Terminated participants with an account balance „ As this number increases, it is a good time to review the list of terminated participants with account balances. If a participant has an account balance over $5,000, they generally must make a written election in order to withdraw the funds either as a cash distribution or rollover to an IRA or another qualified plan. However, smaller balances may be eligible for automatic payment without the participant’s B ENEFIT INS IGH TS | S UMMER 2022