How Are Small Plan Participant-Counting Rules Changing For 2024 Reporting?

Q: I’ve always been frustrated that our fairly small ERISA 403(b) plan has been subject to an expensive financial audit each year, since we only have a relatively small number of active employees (about 50) with account balances in the plan. Most of our employees do not participate, since they are low-paid, despite our extensive efforts to encourage them, and we can’t afford auto-enrollment. We cannot exclude these employees from participation due to the universal availability requirement for 403(b) plans. However, I heard from our recordkeeper that there may be some relief from the Department of Labor going forward, is that true?

Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Yes. On February 23, the DOL announced changes to the annual Form 5500. These changes will be effective beginning in the 2023 plan year, filed in 2024.

Among the changes is one to the participant counting methodology: Instead of all individuals with account balances PLUS all eligible employees without account balances being counted, only individuals with account balances (as of the beginning of the plan year) will be counted. This will lower the participant count for many plans, particularly for 403(b) plans, where there are often a large number of employees who are eligible due to the Universal Availability rules, but do not have account balances.

Please note, however, that although you only have around 50 active employees with account balances, you may still have more than the 100-participant threshold above which a plan audit is generally required, since you must count terminated and retired employees, as well as beneficiaries of deceased employees, who have account balances.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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