How Will Your Employee Benefit Plan Be Affected by Changes to Form 5500?

What is it, and who’s affected?

Form 5500 is an annual form required to be filed for employee benefit plans governed by the Employee Retirement Security Act of 1974 (ERISA). The Form 5500 Series is a collaborative effort by the three governing bodies overseeing employee benefit plans: the IRS, the U.S. Department of Labor (DOL), and the Pension Benefit Guaranty Corporation (PBGC).

In February 2023, the IRS, DOL, and PBGC announced their annual revisions to the 2023 Form 5500 Series, to be used by employee benefit plans with plan years beginning on or after January 1, 2023.

What’s changing for 2023?

Changes include:

• Modified methodology for who is considered a participant in a defined contribution plan
• Regulatory updates to reflect the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act)
• New compliance questions
• Updates to defined benefit plan reporting
• The addition of new schedules and the enhancement of existing schedules

Below is a deeper dive into the upcoming changes.

Participant count methodology

The change likely to have the greatest impact is the change to the methodology determining who is considered a participant for reporting purposes for defined contribution plans. Under ERISA, large plan filers are required to have an independent audit and must attach the auditor’s report and financial statements to their Form 5500 filing.

Prior to the 2023 changes, an individual was considered a participant if they were actively employed and eligible to participate in the plan, regardless of whether they contributed. Under the new methodology, only employees with an account balance will be considered a participant. There is no change to the retired or otherwise separated participants with an account balance in the plan — they will continue to be considered participants.

This change will likely result in a significant number of plans falling below the 100-participant threshold for large plan filers, enabling them to file as a small filer using Form 5500-SF — which includes a waiver of the independent audit requirement. The change was implemented to alleviate the administrative and financial burden to smaller plan sponsors.

As always, the participant count as of the first day of the plan year dictates whether a plan is considered a large or small filer. However, under the change in methodology for newly established plans, the participant count as of the last day of the initial plan year will instead be used — as no participants would be expected to have a balance on the inception date of the plan.

New Form 5500 schedules

The SECURE Act of 2019 established new rules for multiple employer plans (MEPs) with the hopes of enhancing participation and retirement savings. The 2023 Form 5500 includes a new schedule, appropriately named Schedule MEP, which will consolidate and regulate information related to multiple employer plans.

The 2023 Form 5500 will also include a new schedule for defined contribution groups, Schedule DCG, with the goal of simplifying the filing requirements. Prior to this change, unrelated employers in a defined contribution group were required to file separate Forms 5500. If such entities opt to use the new Schedule DCG, only one Form 5500 will be required to be filed at the overall plan level.

Updates to existing schedules

The 2023 version of Form 5500 includes changes to Schedules SB and MB as well as Schedule R associated with defined benefit plan reporting. These enhancements will provide the PBGC with information related to funding and other compliance and financial aspects of the plan.

Schedule H of Form 5500 will have its administrative expenses section expanded to further detail the breakdown of expenses paid out of plan assets. On the current Schedule H, administrative expenses are broken down into five categories. On the 2023 version of the Schedule, there will now be 11 specific line items in an effort to continuously improve on fee transparency.

The IRS has also added compliance questions to various schedules throughout the Form 5500 series to gather specific information about the plan. Most notably, new questions surrounding nondiscrimination testing and the adoption of plan documents and related amendments will now be included. The IRS intends to use this information to identify compliance matters and for data mining purposes.

How we can help

Although these changes were announced this past February, the 2023 versions of the Form 5500 series are not expected to be released until late 2023 or early 2024. For plan years beginning January 1, 2023, the earliest due date for the 2023 Form 5500 filing would be July 31, 2024. While this may seem to be a long way out, it’s never too early to start thinking about how these changes may impact your plan.

If you have any questions about these new rules, please contact one of CLA’s employee benefit plan professionals.