Recent DOL and IRS Guidance for Employers and Plan Sponsors

As 2024 rapidly approaches bringing changes to employers’ filing obligations, it’s crucial to make sure your organization is prepared for these new requirements. Keep reading to learn more:

Form 5500 Changes for 2023

Effective for Forms 5500 filed in 2024, the U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS) revealed changes to the 2023 Form 5500, an annual statement reporting an organization’s employer-sponsored benefit plan to federal agencies. The DOL issued its third and final changes to the form back in February of 2023, which enforce a regulatory proposal from 2021 to modify provisions in the SECURE Act that affect annual reporting requirements.

Modifications To Audit Requirements

Under the revised rules, a participant is defined as an individual with an account balance in the organization’s plan. Employees are not considered participants if they are inactive in or do not contribute to their retirement account. This only applies to organizations in the 100-participant threshold.

While the 100-participants in a plan threshold applies on the first day of the plan year, all new plans must consider the threshold at the end of the year. This may mean that more plans will require audits in the initial year than previously, where that requirement may have been deferred.

It’s estimated that the modification of the audit requirements (that went into effect in January) may eliminate over 19,000 plan audits from being filed in 2024. Organizations with large plan sizes, under these modifications, are also required to complete an audit report.

Prior to this change, plan audits were required in all instances, as participants were considered eligible whether they contributed to their plan or not. This important modification was established as the DOL evaluated the cost of compliance for smaller plans and determined a modification would save on costs and encourage more employers to sponsor plans.

New Multiple Employer Plans (MEP) And Pooled Employer Plan (PEP) Reporting

These regulations also modified Form 5500 to include new reporting requirements for Pooled Employer Plans (PEP) and Multiple Employer Plans (MEP). A new Schedule MEP will consolidate and standardize information that was previously included as an attachment to Form 5500. This information includes items, such as contributions made for each participating employer.

New IRS Compliance Questions

Under the standard’s changes, additional compliance questions were added. These are intended to provide the IRS more information to aid in enforcement efforts and monitoring compliance. Questions cover whether an organization’s plan satisfies the nondiscrimination and coverage testing and address the safe harbor rules for ADP/ACP testing. It also includes a question about the employer adopting a “pre-approved” plan.

More Detailed Administrative Expenses on Schedule H

To aid the DOL in monitoring plan fees, the lines to detail administrative expenses were expanded to include more categories, such as salaries, audit fees, actuarial fees, legal fees and investment advisor fees, among others.

The complete regulation changes can be viewed here. As these are the first substantive changes to Form 5500 in many years, employers must have an understanding of how this impacts their plans.

Electronic-Filing: Requirements Modification

In addition to Form 5500 changes, the IRS issued final regulations for the electronic filing of specific tax and information return types. The regulations affect all organizations required to file with the IRS, including filers of employment tax returns and information returns, as well as Form 1099 series, Form W-2, and Affordable Care Act (ACA) Forms 1094 and 1095. The new IRS regulations state:

  • The decrease of the 250-return threshold in prior regulations requires any organization that files 10 or more returns or statements in a calendar year to be filed electronically.
  • Requires e-filing of certain returns and other documents not previously required to be e-filed.
  • Filers must aggregate nearly all information return types covered by the regulations to determine whether a filer meets the 10-return threshold and is required to e-file their information returns.
  • The elimination of the e-filing exception for organizations’ income tax returns reporting total assets under $10 million at the end of its taxable year.
  • Requiring partnerships with more than 100 partners to e-file information returns.
  • Partnerships must file at least 10 returns of any type during the calendar year to e-file its partnership return.

Many small organizations, since the enactment of the ACA filing requirement, have continued to file Form 1095-C in paper format. However, the ACA filing requirement applies to organizations with 50 or more full-time equivalent employees, requiring electronic filing for most ACA forms in 2024 under the new 10 or more filing threshold.

The modification may dramatically increase the electronic filing mandate for small businesses. Organizations should review completed 2023 paper files and evaluate whether it needs to e-file for 2024. If e-filing is required, it should implement new services to ensure it has an approach to filing electronically in 2024. The IRS can assess significant penalties for failure to file electronically.

With the new year nearly upon us, be sure your organization is ready to implement these changes. Our team of employer resource professionals can support your company in these efforts and in understanding expectations as an employer and plan sponsor. Contact us.

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