2022 Form 5500 (003)



(The New 5500 Audit Rules and More) 

Effective for plan years beginning 2023, the DOL has amended the Form 5500 forms and instructions. One of the big changes is how the number of participants is counted in determining if a retirement plan is considered a small plan and able to file a simplified Form 5500.


New Rule in simple terms:  Generally, plans with fewer than 100 participants/beneficiaries with account balances as of the beginning of the year can take advantage of the simplified Form 5500 and will not be required to have an audit by an independent qualified public accountant.  Under the old rule, all eligible participants were counted.


A new line item will be added to the 2023 Form 5500 and Form 5500-EZ for defined contribution plans to report participants with account balances at the beginning of the plan year.


Impact of the Change: It is expected that with this rule there will be fewer plans needing retirement plan audits.  The DOL estimates a reduction in filings of nearly 19,500. If you assume a cost of $7,500 per audit that is a savings of $146 million for small plan sponsors.


Why was the change adopted?  The DOL had been weighing the old rule considering the increasing cost of plan audits and the effect the long-term part-time employee rule would have on the number of plans subject to audit.


This new rule benefits small plans and benefits large retirement plans with low employee participation.  We have seen some plans that no matter the plan design or the education offered participation doesn’t increase often due to the nature of the industry. We have seen this in the hospitality and home health services industries. Often the cost of the audit would outweigh the cost of starting or keeping such a plan for a company with a large work force.  The new counting rule should help with these type plans and encourage plan adoption in industries that were reluctant to adopt a plan because of the potential audit cost. For example, a company with 150 eligible employees and 25 participating would have a cost of approximately $12,000 under the old rules which required an audit based on eligible employees (150 so over the 100 number).  Under the new rules, there are only 25 participants so there is no audit requirement.  The approximate administrative cost would be $2,500.


Other changes to the 5500


  • A consolidated Form 5500 reporting option for certain groups of defined contribution plans.
  • Improved reporting for Pooled Employer Plans (PEPs) and other Multiple Employer Plans (MEPs).
  • The addition of selected Internal Revenue Code compliance questions to improve tax oversite and compliance of tax-qualified retirement plans.


On February 23, 2023, the Internal Revenue Service (IRS), U.S. Department of Labor (DOL), and the Pension Benefit Guaranty Corporation (PBGC) released their third and final revisions to Form 5500 and Form 5500-SF which changed this rule.

These revisions, and the others issued by the IRS, DOL and PBGC on May 20, 2022, and the DOL on December 29, 2021, implement changes related to provisions in the SECURE Act.

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