Staying informed of these changes is important to maintain compliance.
Participant Count Change
The rules that dictate if a defined contribution employee benefit plan must include an audited financial statement with the Form 5500 filing are based on the employee count. For an employee benefit plan to require an audit, the plan must be a “large plan.” Currently, an employee is considered a “plan participant” if they are eligible to join the plan. For plan years beginning on or after January 1, 2023, only those individuals with an account balance are considered a plan participant. This change is expected to reduce the number of plans that require an audited financial statement. The Department of Labor notes that this change is intended to reduce expenses for small plans and to encourage more small employers to offer retirement savings plans to their employees. Plan sponsors should consult with their third-party administrator or their accountant to determine if this change will impact their plan.
Another change, effective January 1, 2024, is a change to eligible catch-up contributions in a defined contribution retirement plan. Currently, participants aged 50 or older can make catch-up contributions to the plan. The amount of maximum catch-up contributions changes annually ($7,500 for 2023). Beginning January 1, 2024, employees earning over $145,000 annually who are eligible to make catch-up contributions must make those contributions, to the plan, on an “after tax” (Roth) basis. Not all plans include the option to make Roth deferrals. Plan sponsors should make sure that a Roth deferral is allowed under their existing plan or contact their third-party administrator to change the plan to allow Roth deferrals prior to the change. As plan amendments can take time to process, we recommend contacting your third-party administrator well in advance of the change.
For more information about benefit plan services, please contact your trusted TBC Advisor.