2023 Form 5500 Updates
The Department of Labor (DOL), IRS, and Pension Benefit Guaranty Corporation (PBGC) have released updated 2023 Form 5500s, incorporating key reporting changes that add complexity and further the Agencies' focus on enforcement. Here's a breakdown of the most important updates:
New Schedule DCG for Defined Contribution Groups (DCGs)
Introduced by the SECURE Act of 2019, the new Schedule DCG enables multiple defined contribution plans that share the same administrator, fiduciaries, trustee, plan year, and investment options to file a consolidated Form 5500. Each plan within the group must attach its Schedule DCG, which details plan-level information, including participant counts, financials, and compliance. Plans requiring audits must also include the auditor’s report.
Updated Participant Counting Method for Audits
Starting in 2023, defined contribution plans only need to count participants with account balances at the start of the plan year when determining if an audit is required. This adjustment could exempt many small plans (with fewer than 100 participants) from audit requirements, offering relief from the costs and challenges audits present.
Changes to Schedule H: Plan Expenses
Schedule H now includes new expense categories, such as actuarial expenses, audit fees, legal fees, and trustee/custodial fees. This detailed breakout gives the DOL enhanced oversight of plan administrative expenses, improving their ability to monitor compliance.
New Schedule MEP for Multiple Employer Plans
Information about participating employers in multiple employer plans (MEPs) has moved from Form 5500 attachments to the newly introduced Schedule MEP. It includes data on contributions, account balances, and compliance for Pooled Employer Plans (PEPs) and association retirement plans, streamlining reporting for these plans.
Expanded Schedule R: IRS Compliance
Schedule R has been expanded with additional IRS compliance questions related to nondiscrimination testing, ADP testing, and determination letters for pre-approved plans. The asset allocation reporting requirement for large DB plans (with 1,000+ participants) has also been revised.
Penalties for Non-Compliance
Failure to file an accurate Form 5500 can lead to significant penalties. The DOL can impose fines of up to $2,586 per day, while the IRS may assess penalties of $250 per day, up to $150,000. These penalties underscore the importance of maintaining accurate and timely Form 5500 filings.
As these changes take effect, plan sponsors must ensure a thorough and compliant reporting process to avoid potential penalties.
