Earlier this month, the Department of Labor (DOL) issued several updates that not only impact IRS Form 5500 but call for several reporting changes. While an annual exercise, many of this year’s updates were made to comply with the provisions outlined in the SECURE Act of 2019 and focused on improving plan reporting. Updates include reporting of additional plan financial information (specifically expenses), certain qualification and plan compliance information. There was also a change to the participant counting methodology to be used when determining plan status. It is estimated these changes will significantly decrease the cost of plan compliance for Denver employers. To help clients, prospects, and others, Hanson & Co has provided a summary of the key details below.
2023 Form 5500 Reporting Updates
- Defined Contribution Group (DCG) Reporting Arrangement – This is a new reporting arrangement which allows a collection of defined contribution plans that have the same Trustee, Named Fiduciary, plan administrator, plan year, and investment options to file a single Form 5500 return. Although employers can offer a plan through a DCG without having to establish an individual plan, they are still required to follow the reporting regulations of other large plans and submit an annual plan audit.
- Participant Count Methodology – There was also an update to the rules outlining how covered participants are to be counted when determining whether a plan may qualify as a “small plan”. Under prior regulations, plans were required to calculate the total number of eligible participants at the beginning of the year regardless of individual account activity. However, it has now been changed to only include the number of participants at the beginning of the year with an account balance. It is expected this modification will reduce reporting expenses by increasing the number of plans exempt from the annual audit requirement.
- New Expense Categories on Schedule H– There has been a significant expansion of the expense categories list in Schedule H. The purpose of the additional categories is to create more transparency for participants and regulators. Some of the new expense categories include investment advisory and investment management fees, actuarial fees, legal fees, valuation/appraisal fees, trust fees/expenses, salaries and allowances, contractor administrator fees, and other expenses.
- New Compliance Questions – There are several new Internal Revenue Code (IRC) compliance questions added to the 2023 Form 5500. Some of these include whether the plan satisfied the nondiscrimination and coverage test requirements, whether the design based safe harbor or the prior current year Average Deferral Percentage (ADP) were used, and whether the employer was an adopter of a pre-approved plan that required an IRS favorable Opinion Letter. These are designed to help regulators identify plans that are more likely to experience compliance issues.
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