There is a new rule to determine whether a plan is considered a large plan. For plan years beginning on or after January 1, 2023, plans only need to count participants (either active or terminated) with an account balance at the beginning of the plan year. Participants who are eligible but not contributing to the plan do not need to be counted. 

Before 2023, these were the rules for large plan audits: 

1. A brand-new plan was considered a large plan – and required an audit for its initial plan year – if it had 100 or more participants on the plan effective date. Participants are defined as any eligible employee, whether contributing to the plan or not, as well as any former employee with a balance in the plan. 
2. If the plan did not require a large plan audit in its initial year, it was not required to have an audit until the first plan year when there were more than 120 participants on the first day of the plan year. 

Here’s an example of how the counting method change would affect the audit status of a small business:

Avoiding an Audit Saves Money 

401(k) plan audits can cost $10,000 or more. In addition, employers must devote time and effort in working with the auditor to ensure accurate information is provided and the audit is completed on time. We are excited that the new Department of Labor (DOL) method for counting plan participants for Form 5500 purposes will eliminate these costs for many small businesses. 

Why did the DOL make this change? 

The DOL, in part, wants to ensure they don’t overburden plans with long-term, part-time (LTPT) employees becoming eligible to participate in the plan beginning in 2024. Becoming eligible to participate does not necessarily mean LTPT employees will contribute, and this change should help relieve a plan from being subject to an audit because of the newly classified participants from this LTPT provision. 

Questions on how this new rule will affect your business? Reach out to your Bell Bank Retirement Plan Consultant. 

Interested in learning more about the retirement offerings at Bell? Email Mike Kobbervig, SVP/Retirement Plan Services Division Manager, at mkobbervig@bell.bank to start the conversation.