How to Determine if Your Plan Is a Small Plan?

Q: I read with great interest your Ask the Experts column on the new participant counting rules for Form 5500 reporting purposes. With the commencement of these new rules beginning with 2023 returns, does the old 80-120 participant rule still apply? If so, how does it interact with the new counting rules?

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

A: Yes, the 80-120 participant rule remains in effect, allowing small plans to continue to file as a small plan as long as (1) their current 5500 participant count does not exceed 120 on the first day of the plan year, and (2) they filed a small plan Form 5500 (Form 5500-SF) the prior year. The participant count can be adjusted for the new rules, which actually make it easier for plan sponsors to fall within the small-plan threshold. Under the new counting rules, plan sponsors need only count participants with account balances as of the first day of the plan year. Under the old counting method, plan sponsors were required to count all eligible employees, including those who did NOT have account balances.

For example, let’s say you sponsor a plan that filed as a small plan for the 2022 plan year. In the 2023 plan year, your total number of eligible employees, including eligible employees who did not have account balances, grew to 140, but the number of participants with account balances you have on the first day of the 2023 plan year is only 120. Under the new counting rules, you could still file a small plan return under the 80-120 participant rule for 2023, since your participant count under the new rules is 120.

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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