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Final Rules on Changes to 2023 Form 5500 Issued

Regulatory Agencies

The U.S. Department of Labor (DOL), the IRS and the Pension Benefit Guaranty Corporation (PBGC) on Feb. 23 released changes to the 2023 Form 5500 and Form 5500-SF. These are the third—and final—revisions that implement a Sept. 2021 regulatory proposal, which included changes related to provisions in the SECURE Act which affected annual reporting requirements.

The Federal Register notices, Document #2023-02653 for the Notice of Final Forms Revision, and Document #2023-02652 for Notice of Final Rulemaking, also include appendices that describe the changes to the forms and instructions as well as a regulatory impact and paperwork burden analyses. 

The revisions relate to statutory amendments to ERISA and the Internal Revenue Code (IRC) enacted as part of the SECURE Act for multiple employer plans (MEPs) and groups of plans, as well as changes intended to (1) improve reporting of certain plan financial information regarding audits and plan expenses and (2) enhance the reporting of certain tax qualification and other compliance information by retirement plans. They also make some minor changes that further improve defined benefit plan reporting.

Setting the Table 

The SECURE Act directs the Secretaries of Labor and Treasury to develop a new aggregate annual reporting option for certain groups of retirement plans and included other statutory amendments that directly impact annual reporting requirements for MEPs. It also provides that the two departments:

  • Shall cooperate to modify the Form 5500 Annual Return/Report so that all members of a group of defined contribution individual account plans may file a single aggregated annual return/report satisfying the requirements of Code Section 6058 and Section 104 of ERISA. 
  • May require any information regarding each plan in the group that they determine is necessary or appropriate for the enforcement and administration of the IRC and ERISA. 

The SECURE Act also mandates that consolidated reporting by a group must include information that will enable participants in each of the plans to identify any aggregated return/report filed regarding their plan. 

The DOL, IRS and PBGC issued proposed revisions on Sept. 14, 2021. The DOL on Dec. 29, 2021 unveiled final revisions to the Form 5500 and the Form 5500-SF to be used for reporting concerning the 2021 plan year, and include changes that apply to pooled employer plans (PEPs).

The DOL, IRS and PBGC on May 20, 2022 released final revisions to the forms and instructions for the Form 5500 series to be used for reporting concerning plan years beginning on or after Jan. 1, 2022. 

Those revisions incorporated changes to the forms and instructions that primarily implement annual reporting changes for DB plans, including a limited number of instruction changes that focus on reporting for MEPs, including PEPs. The remaining changes were technical changes that are part of the annual rollover of the Form 5500 and Form 5500-SF forms and instructions.

The Effect of the Latest Changes 

The final rules issued on Feb. 23, 2023, make the following revisions to the 2023 plan year reports: 

  • A consolidated Form 5500 reporting option for certain groups of DC plans, improved reporting by PEPs and other MEPs. 
  • A change in the participant-counting methodology for determining eligibility for simplified reporting alternatives available to “small plans,” which are generally plans with fewer than 100 participants. 
  • A breakout of reporting on administrative expenses paid by the plan on the plan’s financial statements.
  • Further improvements in financial and funding reporting by PBGC-covered DB plans.
  • The addition of selected IRC compliance questions to improve tax oversight and compliance of tax-qualified retirement plans.  
  • Technical and conforming changes as part of the annual rollover of forms and instructions.
  • Technical adjustments that address certain provisions in SECURE 2.0 Act of 2022 regarding 403(b) multiple employer plans, including: 
    • pooled employer plans;
    • minimum required distributions; and 
    • audit requirements for plans in defined contribution group reporting arrangements.

Why This Matters

“The form changes and regulatory amendments, especially those on multiple-employer plan reporting, improve the Form 5500 as a critical oversight, public disclosure and policy data tool,” said Assistant Secretary for Employee Benefits Security Lisa M. Gomez in a press release. 

Kizzy M. Gaul, an ERISA attorney at Ascensus, remarks, “While the final 2023 versions of the forms included group of plans guidance as expected, it also includes some surprises. For example, the addition of Internal Revenue Code compliance questions that ask for information on the safe harbor status of the plan, how a plan satisfied ADP and coverage testing, and the date of last the last opinion letter. This type of information isn’t typically tracked in recordkeeping systems and will require effort to collect the data necessary to respond to the new questions.”  

Among the changes is that final regulation revises the method of counting participants for purposes of determining when a DC plan may file as a small plan, which also factors into whether the plan may be exempt from the IQPA audit requirement. Specifically, plans are directed to count only the number of participants/beneficiaries with account balances as of the beginning of the plan year, as compared to the current rule that counts all the employees eligible to participate in the plan. This is facilitated through the Form 5500 and Form 5500-SF, which ask for the number of participants with account balances at the beginning of the plan year, for DC plans only.
It is “big news” that small audit count changes are included, says Kelsey Mayo, Director of Regulatory Affairs at the American Retirement Association and Partner at Poyner Spruill LLP. She also notes that “the DOL essentially adopted the rationale in our comment letter regarding cost-benefit analysis.” 

In that letter, the ARA had said, 

Several commenters have suggested the DOL should not change the rule because small plans are fraught with compliance errors. ARA disagrees with these commenters. ARA members report that plans of all sizes share the potential for common errors. Small plans are not more prone to errors in general. Sponsors of larger plans may have a dedicated benefits staff, but the plans and payrolls often are more complex, leading to a similar potential for errors. While all plans have the potential for errors, larger plans naturally have the potential for larger and more financially significant errors, hence why large plans are audited; ERISA acknowledged that there was a cost-benefit tradeoff in requiring an IQPA audit. As the expense of audits has increased, we believe the cost-benefit analysis can and must be revisited as the Agencies have done in the Proposal. 

Further, ARA believes revisiting the cost-benefit analysis as the Agencies have done in the Proposal is critical at this juncture. With the SECURE Act’s changes to eligibility provisions on the immediate horizon, a significant number of plans will become subject to an audit if the method of counting participants for the waiver is not revised. While ARA fervently hopes that many long-term part-time employees newly covered following the SECURE Act changes will participate, it seems likely that many will not. Therefore, these newly eligible employees may trigger the need for an IQPA audit, the cost of which will be borne by significantly fewer than 100 individual participants. The retirement outcomes of these participants should not be negatively impacted by the increased coverage of their part-time colleagues. Again, this re-emphasizes why the cost-benefit analysis can and must be revisited as the Agencies have done in the Proposal.