In the world of Employee Benefit Plan Audits, 100 is the magic number. Generally, retirement plans with over 100 participants are required to be audited annually and the audit report is filed as an attachment to the Form 5500.
When determining the number of participants in your plan, the first day of the plan year is the determination date. For example, for a plan with a plan year ending December 31, 2014, the determination date is January 1, 2014. When counting participants, all employees who have met the eligibility and entry date requirements are considered a participant in the plan. This includes employees who have chosen not to defer. Thus, an employee who has met the requirements would be considered a participant even if they don’t have an account balance. In addition, any terminated employee with an account balance would need to be included as a participant.
If the participant count is between 80 and 120, the Form 5500 instructions provide an 80-120 rule. In essence, this rule states that the plan may file whatever was filed in the previous year. If the plan was not audited in the previous year, the plan may be able to elect not to be audited if the participant count at the beginning of the plan year is 120 participants or less. A practical tip to stay below 121 participants is to work with your record keeper to encourage terminated participants to take a full distribution from the plan.
If you think you are closing in on the audit threshold, Kruggel Lawton can help guide you through the requirements and help you get ready for your first retirement plan audit. Learn more about our Employee Benefit Plan Audit services or contact us today to talk through your specific situation.
Written by: Steve Beasy, CPA - Partner
Phone: 574.264.2247, x333