The Department of Labor recently finalized changes to the definition of a “large plan” for Form 5500 reporting purposes.  Of course, qualifying as a “large plan” can require the plan to have an audit resulting in additional expenses associated with the plan.  The changes will take effect for the 2023 plan year.

A large plan is one with 100 or more participants on the first day of the plan year, although special rules apply to plans that cross over that number (please consult your accountant if you are over 100 participants).  As for who gets counted towards the 100 participants, the rule has been that you count 1) any employee who is eligible (whether or not that individual actually participates is irrelevant) and 2) anyone who has an account (regardless of employment status).

The new final regulations change the rules so that only individuals who actually have accounts in the plan are counted as participants.

The change is anticipated to lower participant counts for plans.  This may mean an individual plan will no longer qualify as a “large plan” and therefore not require an audit.  However, several provisions from recently passed legislative acts set to take effect in the coming years might cause the reductions to be temporary.

First, plans adopted on or after December 29, 2022 must automatically enroll new participants starting in 2025.

Second, new rules for long-term, part-time employees mean that a number of previously ineligible hourly employees will now be eligible. Currently, plans can set their own work hour requirements to qualify (for example, minimum 1,000 hours worked for part-time employees).  New legislation sets the maximum number of hours a plan can require to be worked at only 500 hours (a plan could still set a lower number).  Part-time employees who work two consecutive years over 500 hours will now be eligible for to participate in plans.

If you have any questions or concerns, particularly with how the new legislation will affect your plan, please reach out to your JMF accountant and we will be happy to find the answers.