Good News For Small Employers: Changes To Plan Audit Requirement Counting Methods

Revisions to the Form 5500 released earlier this year are about to make life a little easier for many small employers that sponsor defined contribution plans. Specifically, the revised form reflects a change to the methodology small employers must use to count participants for purposes of Form 5500 reporting and – most critically – the need for a plan audit.

Before diving into this important policy change, let's review the current rules. Defined contribution plans that are considered "large" plans are subject to an annual Independent Qualified Public Accountant (IQPA) audit requirement. Under the current rule, a plan is considered to be "large" if the number of employees who are eligible for the plan at the start of the plan year is 100 or greater, regardless of whether those eligible employees have account balances. If, on the other hand, this number adds up to less than 100, the plan is deemed to be "small" and qualifies for an audit waiver.