As 2023 comes to an end, it’s a good time to look back and think ahead. There were important changes for employee benefit plans in 2023 that could impact your need for an audit.
Audit Requirements
In February 2023, the Department of Labor (DOL) updated the Form 5500 filing requirements, which impacted the need for an audit. Effective for plan years beginning January 1, 2023, and after, plans with 100 participant accounts (including beneficiaries) will need a plan audit. Prior to the rule change, an audit was required for plans with 100 eligible employees; the change in requirement could decrease the need for an audit. Additionally, there is a DOL “80/120 rule” to further assist with audit eligibility requirements, especially for plans teetering on the cusp of an audit. If your plan has participant accounts between 80 to 120 participants, you may be able to take advantage of this rule. Please see the examples below for eligibility under the new and old rule changes.
Examples of application of the new guidance include the following:
| Example | New Plan? | Eligible Participants at Beginning of Year | Participants with Account Balances at Beginning of Year | Participants With Account Balances at End of Year | Prior Year Plan Type (Large or Small) | Large Plan with Audit Requirement? |
| Plan A | No | 300 | 150 | 175 | Large | Yes |
| Plan B | No | 300 | 130 | 70 | Large | Yes |
| Plan C | No | 150 | 75 | 85 | Large | No |
| Plan D | No | 150 | 85 | 95 | Large | No |
| Plan E | No | 110 (1) | 90 | 90 | Small | No |
| Plan F | Yes | 200 | 0 | 130 | N/A | Yes |
| Plan G | Yes | 200 | 0 | 101 (2) | N/A | Yes |
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Plan E never had more that 120 participants in the plan and, therefore, always utilized the 80-120 rule to be exempt from the audit requirement.
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Plan G has an audit requirement since it has 100 or more participants with account balances as of the end of their first year. They would not be able to apply the 80-120 rule and use the threshold of 120 since they would not have had a prior-year filing.
Audit Due Date
As noted above, the audit is due when you file Form 5500. Form 5500 filings are due to the Internal Revenue Service (IRS) the last day of the seventh month after the plan year-end, which is July 31 for calendar year plans. Additionally, a Plan Sponsor may extend this deadline by two and one-half months by filing an IRS form 5558. For December 31, 2023 ended plan years, the filings are due July 31, 2024 or extended to October 15, 2024.
Contribution Limits
The IRS has updated the contribution limits for 2024. Compensation limits increased from $330,000 (2023) to $345,000 (2024). Deferral limits to 401(k) plans increased from $22,500 (2023) to $23,000 (2024). Additionally, for participants who reached age 50 during the plan year the deferral limits stayed the same at $7,500. Many payroll systems can set the limits in advance to ensure proper adherence and to prevent over contributions.
SECURE Act 2.0
Additionally, the Setting Every Community Up for Retirement Enhancement ACT (“SECURE ACT”) was signed into law on December 29, 2022. The goal of the Act is to expand access to retirement plans, increase savings opportunities and streamline administration for employer-sponsored retirement plans. SECURE Act 2.0 has provisions effective for plan years 2023 and 2024, including a few plan provisions below:
- Requirement Minimum Distributions (RMD): Increases RMD age to 73 starting on January 1, 2023. The ACT reduces the excise tax penalty for failure to take RMDs from 50% to 25%, with a further reduction to 10% if the RMD failure is corrected in a timely manner.
- Hardships: Effective January 1 2023, the Act allows employees to self-certify qualifying events constitutes a hardship or unforeseeable emergency for purposes of taking a hardship or unforeseeable emergency withdraws.
- Terminal Illness: Effective January 1, 2023, the Act permits terminally ill individuals to receive penalty-free distributions from retirement accounts, including IRAs. The individual must be certified by a physician as having an illness or physical condition that can reasonably be expected to result in death in 84 months or less.
- Distributions: Effective January 1, 2024, the Act will allow provisions for certain emergencies, domestic abuse, and mandatory distributions.
- Roth Contributions: The Act allows for Roth Match and Roth Catch-up contributions; however, many third party administrators are awaiting further guidance on how these will be tracked.
The DOL has estimated 19,500 plans will no longer require an audit. In addition, the upcoming provision changes related to the SECURE ACT should elevate the importance to discuss the above changes with your third-party administrators, payroll companies and accountants to determine your eligibility for Secure Act 2.0 and Plan Audit Changes.
For additional reminders and common errors we note in the administration of 401(k) plans, please see an earlier article of Table Talk discussing the following:
- Defining compensation
- Disclosing information
- Timely remittances
- Other mistakes
We Are Ready To Help
As your 401(k) plan’s administrator, you have a fiduciary duty to follow the guidelines outlined by the DOL and ERISA. Your fiduciary responsibilities require you to follow plan documents, diversify investments, act in the interest of the participants, and keep expenses reasonable. If you would like assurance that you are doing all that you need to do, feel free to reach out to our team. We provide consulting services to restauranteurs and can even perform your 401(k) audit if need be. We look forward to hearing from you
