Uniglobal can help you and your organization prepare for what's next.
The US Department of Labor, Internal Revenue Service, and the Pension Benefit Guaranty Corporation have announced changes to the Form 5500 and Form 5500-SF Annual Return/Report of Employee Benefit Plan that will take effect for plan years starting on or after January 1, 2023. The most significant changes include a new participant-counting methodology for small plans, improved reporting by multiple-employer plans, and an option for certain groups of defined contribution retirement plans to consolidate Form 5500 reporting. These changes were made to comply with provisions in the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act).
To keep up with the changing landscape of retirement planning, the Department of Labor, the Internal Revenue Service, and the Pension Benefit Guaranty Corporation have made several revisions to the Form 5500 and Form 5500-SF. The revisions will be implemented in three phases to integrate the regulatory process into the annual development schedule for the electronic filing and processing system for the Form 5500, called EFAST2.
We'll focus on Phase III changes, but to recap here are the basics from the prior Phases: Phase I addressed the SECURE Act amendment of ERISA section 103(g) and included minor instruction changes and adjusted reporting of participating employer information. Phase II adopted forms and instructions changes, adding new questions and revising existing questions on Schedules MB, SB, and R, and modifying the contribution and benefit attachment.
The key revisions in Phase III include the following:
The most impactful revision is the participant-counting methodology for eligibility determination. This change has the potential to save employers, who historically may have been perpetually on the cusp of being a "large-filer," thousands in audit costs. This new methodology for defined contribution retirement plans will now be based on the number of participants with account balances, rather than the previous method which counted individuals who were eligible to participate, but had not elected to participate and did not have an account in the plan. The goal of this change is to minimize expenses for small plans and encourage more small employers to provide retirement savings plans to their workers. With this new methodology, small businesses can take advantage of simplified reporting alternatives and avoid unnecessary audits, thus saving costs and time.
The Form 5500 and Form 5500-SF are required for most employee benefit plans to file; the forms report information about their financial condition and operations. The data collected from these forms is used by the Department of Labor, the Internal Revenue Service, and the Pension Benefit Guaranty Corporation to assess employee benefit, tax, and economic trends and policies, as well as to monitor the operations of participating employers, plan participants, and beneficiaries.
Forms 5500 and 5500-SF are critical enforcement, compliance, and research tools for government agencies, assessing employee benefit, tax, and economic trends and policies. Moreover, they are the primary public disclosure document for participating employers, plan participants, and the public to monitor plan operations, including MEPs and group filing arrangements.
The Form 5500 and Form 5500-SF will now include more questions related to Internal Revenue Code compliance for tax-qualified retirement plans. These compliance questions will help the government to monitor and ensure that plans are complying with the tax code requirements. Plans must answer these questions truthfully and accurately to avoid penalties and fines for noncompliance. The additional compliance questions are expected to improve the overall compliance of tax-qualified retirement plans, which in turn can benefit plan participants.
The IRS requires certain information from plans to ensure that they meet the requirements of the tax code. The purpose of these changes is to improve the accuracy and transparency of reporting for employee benefit plans and to encourage more small businesses to provide retirement savings plans to their workers.
If you have questions or would like to learn more about how Uniglobal can provide you and your plan with compliant Form 5500-preparation services contact us!