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