Each year, all employee benefit plan sponsors – excluding church and government plans – must electronically file a Form 5500 using EFAST2 for each ERISA covered plan that meets certain thresholds. Failing to properly file can result in significant financial penalties ($2,233 per day/DOL and $250 a day up to $150,000 a plan year/IRS). For plan years beginning on or after January 1, 2023, there are updates to Form 5500 and Form 5500-SF and some related changes all plan sponsors should know.

Form 5500 and Form 5500-SF are used to report a plan’s financial status and operations. The DOL, IRS, and PBCG use information from the forms for enforcement, compliance, and research purposes. Other federal agencies and Congress use the data to assess employee benefits, taxes, and economic trends and policies. Information from the form is shared with plan participants and beneficiaries via a Summary Annual Report (SAR) that must be issued within nine months of a plan year end or two months after a Form 5500 extension.

In addition to defined benefit (DB) and defined contribution (DC) retirement plans, a Form 5500 needs to be filed for ERISA covered plans including but not limited to medical, dental, vision, disability, life, flexible spending accounts (FSAs), and health reimbursement accounts (HSAs). Failing to file can result in significant penalties from both the Internal Revenue Service (IRS) and Department of Labor (DOL).

On February 24 of this year, the IRS, DOL and Pension Benefit Guaranty Corporation (PBGC) jointly released revisions to Form 5500 and Form 5500-SF as they relate to DB and DC retirement plans. This is the third and final phase of changes that started in 2021 to update the Form to reflect the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

A DOL Fact Sheet notes that key revisions include a consolidated Form 5500 reporting option for defined contribution group (DCG) arrangements; improved multi-employer plan (MEP), including pooled employer plan (PEP), reporting; an update to the participant count methodology to determine small plan eligibility for simplified reporting alternatives; a breakout of administrative expenses paid by the plan on its financial statements; financial and funding reporting improvements for PBGC-covered DB plans; the addition of Internal Revenue Code (IRC) compliance questions; and other changes as part of the annual review of forms and instructions.

Of particular interest to small businesses is the change to participant count methodology. This count is used to determine which DC plans are not considered large and can therefore use a simpler filing process via Form 5500SF and no annual audit. (Large plans must use Form 5500 and complete an Independent Qualified Public Account or IQPA audit annually.)

Previously, participant count was based on the number of employees eligible to participate (regardless of whether they did or not). Starting the 2023 plan year, a DC plan with 100 or more participants with account balances at the start of the plan year is considered a large plan and must complete Form 5500 and the IQPA audit. A plan with less than 100 participants with account balances at the start of the plan year can use Form 5500-SF and will not have to meet the audit requirement, saving time, effort, and money. (Consider talking to your benefit advisor about mandatory distribution of small accounts up to $7,000 under SECURE 2.0 as it may help lead to a reduction in your participant accounts.)

The Form 5500 deadline is seven months after a plan year ends. So, calendar year plans have a July 31 deadline unless they file an extension which pushes the deadline to October 15.

For more details, refer to Fact Sheet: Changes for the 2023 Form 5500 and Form 5500-SF Annual Return/Reports on the Employee Benefits Security Administration website; refer to the Final Rule; or visit the DOL fact sheet and DOL news release.  Find SAR language for plan years 2023 and later, go to the Employee Benefits Security Administration webpage, under “General Reporting and Filing Compliance Assistance.”)

If you have any questions about Form 5500, please don’t hesitate to reach out to RBT CPA affiliate Spectrum Pension and Compensation. At the same time, you can count on RBT CPAs to take care of all of your tax, accounting, audit, and advisory needs. Give us a call to learn more.

RBT CPAs is proud to say all our work is prepared in the U.S.A. – we never offshore. As a result, you get peace of mind that your operation’s financial and confidential information is handled by full-time, local staff who have met our high standards for quality, ethics, and professionalism.