The DOL Department of Labor has made some noteworthy changes to the financial statement audit requirement for retirement plans. The rules that began in calendar year 2023 become effective with your July 2024 reporting. Here was the main difference starting last year: The participant count will be based upon the number of participants who have account balances in the 401(k) plan and NO LONGER based on just “eligible” employees.

The Change Is Good for Small Employers

This adjustment is designed to lessen the compliance burden for smaller plans while maintaining oversight and protection for plan participants’ retirement assets. In short, the new levels are intended to lower expenses for small plans and encourage startups and growing employers to offer retirement savings plans to their workers.

Meanwhile, the Federal Register Notices and Paperwork Reduction Act analyses estimate that overall filing costs for all businesses will be reduced by $95 million annually combined.

Audits and Electronic Delivery

While audits at certain levels are not required, CPAs recommend that employers still ensure their plans comply with DOL regulations by continuing regularly scheduled audits. Plus, 401k plan audits give employees peace of mind, knowing their retirement savings are being looked after with care! Along with changes in reporting requirements, the government has introduced electronic delivery for the Form 5500 series (5500, SF, and EZ).

The IRS has introduced even more measures to streamline the distribution of 401k plan audit reports. Plan administrators can electronically deliver audit reports to plan participants, provided certain conditions are met. Be sure to check these conditions with your CPA. This shift enhances accessibility and transparency and aligns with the broader trend toward improved data security and paperless processes. By incorporating digital delivery methods and CPA audits with particular attention to security, plan sponsors can heighten compliance efficiency while simultaneously streamlining communications with plan participants, making it easier and less time-consuming.

Filing Begins July 2024

Per EFAST2’s regular annual schedule, the 2023 Form 5500 series (Form 5500, 5500-SF, and 5500-EZ) was released in January 2024 for filing as part of the EFAST2 electronic filing system commencing July 2024.

More Details

This U.S. Department of Labor Employee Benefits Security Administration  FACT SHEET (repeated from our previous announcement for your convenience) explains the 2023 changes to Form 5500 and Form 5500-SF (Short Form). The Fact Sheet’s main points are recreated here, and acronyms are spelled out for expediency.

• A consolidated Form 5500 reporting option for certain groups of defined contribution retirement plans–defined contribution group (DCG) reporting arrangements.
• Improved reporting by multiple-employer plans (MEPs), including pooled employer plans (PEPs).
• A change in the participant-counting methodology for determining eligibility for simplified reporting alternatives available to small plans.
• A breakout of reporting of administrative expenses paid by the plan on a plan’s financial statements.
• Further improvements in financial and funding reporting by PBGC-covered (Pension Benefit Guaranty Corporation-covered) defined benefit plans.
• The addition of selected Internal Revenue Code 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.

(Source: DOL 2023 Fact Sheet.)

Less Reporting Means More Responsibility

Reduced reporting and audit requirements for smaller plans starting in July 2024 accentuate the significance of effective governance in overseeing 401k plans. Plan sponsors and administrators must maintain an inviolable sense of fiduciary responsibility. They must continue to manage plan assets sensibly and wisely while minimizing fees to ensure they act in the best interests of plan participants, for their benefit and that of stakeholders at large. To that end, adhering to best practices in maintaining robust internal controls and oversight tools that reduce risk and ensure compliance with regulatory requirements is vital.

By emphasizing adherence to fiduciary responsibilities and governance, plan sponsors foster accountability, promote trust, and preserve the long-term financial well-being of plan participants and the organization as a whole. Continuing your regularly scheduled 401k audit cycle with your CPA confirms your dedication to your fiduciary responsibilities.

Preventing Fraud with Retirement Plan Disclosures

Plan sponsors should be aware of the disclosures associated with 401k plans. Here’s why: All participants should be given access to complete knowledge to make informed decisions about their retirement savings, who is managing the plan, and much more. Moreover, fidelity bonds held by plan administrators have been experiencing increased examination to safeguard plan assets against fraud and mismanagement. To access the Reporting and Disclosure Guide, click here. Additional disclosures protect everyone.

Being Better Than “Good”

Many of our clients offer retirement plans. It’s such an excellent benefit! With the new DOL rulings, many smaller companies can confidently offer this value and use electronic delivery of 5500, 5500-SF, and 5500-EZ Forms to save time and money.

Along with the increase in efficiency and streamlining, the risks of security breaches increase as well. Attention to governance and data security are part of the fiduciary responsibility accompanying a defensible retirement plan that lets everyone sleep better at night. It’s a great thing when the government pushes to reduce costs by simplifying paperwork and lowering audit requirements. It encourages more participation and boosts companies’ desire to promote this type of plan, which will help more people navigate retirement successfully. All of society benefits from this—which is better than good. Having your 401k plan audited, however big or small, is the frosting on the cake, taking “good” to “excellent.”

Many resources, instructions, and directions for government forms are available online. Here’s a link to the instructions page for Form 5500 and 5500-SF (Short Form) and Form 5500-EZ. The government pages also explain a few other forms: Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits, and Form 5558, Application for Extension of Time To File Certain Employee Plan Returns.

Meanwhile, remember that while the announcements and links are wonderful, it’s best to check with your favorite CPA (LSL CPAs, for instance) and your retirement plan advisors (such as your financial advisor or third-party administrator) to make sure you’re in compliance.

Please get in touch with us if you have questions about this vital topic.