Agencies Release Information Copies of the 2023 Form 5500 Series

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Subject to exemptions, the federal regulations generally require employee benefit plans to file an annual return/report of their operations, including investment and financial conditions, by utilizing the Form 5500 Series. In November 2023, the Department of Labor’s (“DOL”) Employee Benefits Security Administration, the Internal Revenue Service (“IRS”), and the Pension Benefit Guaranty Corporation (“PBGC”) (collectively, the “Agencies”) released informational copies of the 2023 Form 5500 Annual Return/Report and related instructions. The DOL Fact Sheet summarizing the changes to the 2023 Form 5500 can be found here: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/changes-for-the-2023-form-5500-and-form-5500-sf-annual-return-reports.pdf

The changes primarily relate to Forms 5500 and 5500-SF. Note that the advance copies of the 2023 Form 5500 are for informational purposes only and cannot be used to file a 2023 Form 5500. The informational copies are simply intended to highlight changes from 2022 to 2023. Please check the DOL’s EFAST2 website for the official electronic versions in 2024.

In September 2021, the Agencies published a Notice of Proposed Forms Revisions (“2021 Proposal”). The 2021 Proposal was split into three phases, and the first two phases have been already successfully implemented.  Some of the revisions to the 2023 Form 5500 are carryover elements from the 2021 Proposal as a part of the third and last phase, which further emphasizes the comprehensiveness of the modernization efforts.

Summary of Changes

Among other things, the 2023 changes include the following updates with the most notable changes further described in detail below:

• New Schedule MEP for multiple-employer plans, including pooled employer plans (“PEPs”)
• Additional categories of administrative expenses on Schedule H
• New electronic filing option for requesting extension on Form 5558
• Revised small plan audit participant count method
• New Schedule MB for plans receiving special financial assistance
• Additional compliance questions by the IRS to improve tax oversight
• New consolidated Form 5500 reporting option for certain defined contribution group (“DCG”) arrangements
• Improvements in financial and funding reporting by PBGC-covered defined benefit plans
• Changes to the annual rollover forms and instructions

Audit Participant Count Methodology

Generally, employee benefit plans with over 100 participants are subject to more detailed requirements for Form 5500 purposes whereas employee benefit plans with less than 100 participants (also referred to as “small plans”) can take advantage of simplified reporting alternatives, including an exemption from the IQPA annual audit. As a part of the third phase of the 2021 Proposal, the Agencies revised the counting methodology for the 100-participant threshold to be based on the number of participants with account balances rather than the individuals who are eligible to participate regardless of whether they choose to enroll. The number of participants with account balances is to be determined at the beginning of the plan year.

SECURE Act Changes

One of the modifications to the Form 5500 involves the implementation of PEPs as a new type of a retirement plan by the SECURE Act. This is largely accomplished by the addition of a new Schedule MEP, which houses information regarding multiple-employer plans as well as PEPs. The SECURE Act also required the DOL and the IRS to jointly develop consolidated annual reporting option for certain DCG arrangements, which are generally subject to the Form 5500 requirements for large pension plans. Further, the SECURE Act 2.0 added DCG audit requirements. These provisions were reflected accordingly in Schedule DCG that must be attached to each consolidated Form 5500 filed by a DCG.

Additional IRS Compliance Questions

The informational copy of Schedule R to the 2023 Form 5500 includes additional IRS compliance questions. Specifically, one of the questions pertains to whether a plan, managed by an employer with aggregate plans in its testing group, meets the nondiscrimination and coverage tests set forth in Internal Revenue Code §§ 401(a)(4) and 410(b). This information will help the IRS identify plans with high risk of non-compliance. Another question seeks information about whether the plan sponsor incorporated a design-based safe harbor approach or, if applicable, the “prior year” or “current year” ADP test to help the IRS distinguish between the 401(k) plans using different approaches. In addition, the IRS inquires into whether the employer is an adopter of a pre-approved plan with a favorable IRS opinion letter and asks for the information relating to such a letter.

Employer Impact

The Form 5500 has long served as the primary tool for reporting critical information about employee benefit plans; thus, continuous improvement of the reporting documents and instructions is imperative in order to enhance accuracy, transparency, and data usability. More changes are to come with the DOL’s initiative aimed at modernizing the Form 5500. For example, revisions to group health plan reporting and implementation of data-mining capabilities are in consideration. The targeted proposal release date is set for the upcoming year. The goal is to make the information on the form more accessible and usable. Plan sponsors, employers, and plan administrators should closely monitor the developments and familiarize themselves with the proposed changes to the reporting practices.