A defined benefit or defined contribution plan (including 401(k)) is considered a “small plan” until the total number of eligible participants reaches 100. After reaching 100 total eligible participants, the plan is considered a “large plan.”
Eligible participants are broken down into the following:
- Active: Individuals who are currently employed by the plan sponsor, covered under the plan, and receiving credited service. This includes those eligible but not electing to participate.
- Retired/Separated: Individuals who are no longer employed by the company and are either receiving benefits or entitled to receive benefits.
- Deceased: Individuals who have passed away and have one or more beneficiaries either receiving benefits or entitled to receive benefits.
Upon reaching the “large plan” status, an audit is required per federal law, with one notable exception. The 80/120 Participant Rule provided by DOL Reg. 2520.103-1(c) and (d). The 80/120 Participant Rule allows a plan that filed a Form 5500 as a “small plan” last year to file its current Form 5500 in the “small plan” category again this year and forgo the audit requirement if at the beginning of the year the total number of eligible participants were less than 120. An audit would be needed if the eligible participants were 120 or greater and would have to file form 5500 as a large plan.
For those plans requiring an audit, the audit must be attached to the complete Form 5500 and must be electronically filed with the IRS by July 31 (for calendar year-ends.) If needed, however, extensions are permitted to extend the Form 5500 to October 15 (for calendar year-ends.) To avoid penalties for failing to complete the Form 5500 or ramifications of filing late, plan sponsors should take the time to understand the requirements for a retirement plan audit well in advance of the filing deadline.