Proposed Form 5500 Changes May Affect How Pension Plans Determine Need for Annual Audit

The Employee Retirement Income Security Act of 1974 (ERISA) imposes certain annual reporting and filing requirements on pension and welfare benefit plans. These reporting and filing requirements are typically satisfied by submitting the Internal Revenue Service (IRS) Form 5500 to the U.S. Department of Labor (DOL). Form 5500 is an annual report that details information about a retirement plan’s financial condition, investments and operation.

The DOL, IRS and the Pension Benefit Guaranty Corporation (PBGC) proposed revisions to Form 5500. The proposed changes primarily relate to statutory amendments to ERISA and the Internal Revenue Code (Code) as part of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). The DOL, IRS and PBGC proposed additional changes with the intention of:

  • Improving reporting on multiemployer defined benefit pension plan funding
  • Updating Form 5500 financial reporting to make the financial information collected more useful and usable
  • Enhancing the reporting of certain tax qualification and other compliance information by retirement plans
  • Transferring to the DOL participating employer information for multiple employer welfare arrangements that are required to file Federal Form M-1 (Report for Multiple Employer Welfare Arrangements (MEWSAs))

Per the Federal Register, the comment period recently closed regarding these proposed revisions.

BSSF wants to highlight that the proposed revisions include a significant change to the audit rule of the defined contribution pension plans (for example, 401(k) Plans). Currently, an audit is required for all “large plans,” defined as Plans with over 100 eligible participants. This means that even employees who do not participate in the Plan are counted to determine if the Plan is required to have an annual audit. However, the proposed changes would revise this rule so that only those with active balances in the Plan would be counted at the beginning of each Plan year to determine whether the Plan is required to have an annual audit.

The BSSF Employee Benefit Plan (EBP) Practice will continue monitoring the proposed revisions closely to see if these proposed changes are officially adopted to the Form 5500 annual return and report.  Should these changes occur, there could be many defined contribution plans that file the large plan Form 5500 and thus would no longer require an annual audit.

About the Author

Scott A. Esworthy, CPA, is a Principal and Shareholder with BSSF, specializing in the audits of employee benefit plans and property and casualty insurance entities. Scott co-manages the Firm’s significant Employee Benefit Plan (EBP) Practice and is responsible for the Firm’s audit services of employee benefit plans. Additionally, Scott is a member of the Firm’s 401(k) Committee.

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