New Form 5500 Instructions Contain Important Changes:

On February 24, 2023, the IRS, DOL, and PBGC issued final forms and instructions for the Form 5500 series, effective for plan years beginning on or after January 1, 2023. The new provisions are intended to: (1) improve reporting of plans’ financial information regarding audits and plan expenses; and (2) enhance the reporting of certain tax qualification and other compliance information by retirement plans.

The form and instructions changes fall into five major categories for defined contribution plans:

  1. Consolidated Reporting Option:  Section 202 of the 2019 SECURE Act directed the IRS and DOL to modify the Form 5500 to allow certain groups of defined contribution plans to file a single consolidated Form 5500 (i.e., a defined contribution group (“DCG”) reporting arrangement). For a group of plans to be eligible to file a consolidated Form 5500, the 2019 SECURE Act mainly provided that all plans must be defined contribution plans that have the same trustee, the same one or more named fiduciaries, the same plan administrator, the same plan year, and the same investment options for participants. Under the new Form 5500 and instructions, an additional schedule (Schedule DCG Individual Plan Information) will be required for these arrangements. That schedule will report individual plan-level information for each plan included in the DCG filing, including an accountant’s audit report (if applicable).
  2. Schedule MEP:   This schedule will report information specific to MEPs. This includes participating employer information and aggregate account information, which will now be reported on this schedule instead of as a nonstandard attachment to the Form 5500. This schedule will also include information necessary to satisfy certain PEP reporting requirements.
  3. Counting Participants:  Currently, defined contribution plans determine whether they may file as small plans (which involves simplified reporting) and whether they qualify for an audit waiver based on the number of participants with plan accounts as of the beginning of the plan year and based on the number of participants who are eligible to elect to have contributions made under a 401(k) plan, even if they have not elected to participate and do not have an account balance. The new forms and instructions provide that for purposes of determining that number of participants, plan sponsors will simply look to the number of participants/beneficiaries with account balances as of the beginning of the plan year.     
  4. New Breakout Categories:  The final forms revisions update Schedule H by adding new breakout categories to the “Administrative Expenses” category of the Income and Expenses section. Those breakouts will be “Salaries and allowances,” “Contract administrator fees,” “Recordkeeping fees,” “IQPA audit fees,” “Investment advisory and investment management fees,” “Bank or trust company trustee/custodial fees,” “Actuarial fees,” “Legal fees,” “Valuation/appraisal fees,” “Other Trustee fees/expenses,” and “Other expenses.”
  5. New Compliance Questions:  First, a nondiscrimination and coverage test question has been added. That question asks if the employer aggregated any plans when testing whether the plan satisfied the Code’s nondiscrimination and coverage requirements. Second, 401(k) plans will have to specify whether, if applicable, the plan used the design-based safe harbor rules or the “prior year” or “current year” ADP testing method. Third, plans will have to report whether the employer is an adopter of a pre-approved plan that received a favorable IRS Opinion Letter. If so, the letter’s date and serial number must be reported.