With the passing of the October 15th deadline, tax season has finally ended. October 15th is not just the extended deadline for taxes to be filled. It is also the extended deadline for Form 5500 to be filed for retirement plans, and if the plan is a “large plan”, an audit of the retirement plan is required to be performed prior to filing the 5500. What is a large retirement plan and when do you need an audit of your retirement plan?
The Department of Labor requires all large plans to be audited prior to the 5500 being file. A large plan is defined as a plan with 120 eligible employees at the beginning of the plan year. Eligible employees are all employees who are eligible to participate in the plan, including those employees who are eligible to participate but have chosen not to.
For example, a company has 100 employees on January 1, 2020, all of whom are allowed to participate in the company’s retirement plan. During 2020, the company hires an additional 20 employees, all of whom become eligible to participate in the plan during the year. By January 1, 2021, the company has 120 employees who are eligible to participate in the plan.
In this example, the company does not need an audit of their retirement plan for 2020, as they had less than 120 employees as of the beginning of the plan year (January 1, 2020). They will be required to have an audit for 2021 however, as they had 120 employees as of the beginning of that plan year (January 1, 2021).
It is important to actively monitor eligible employees if you have a retirement plan, so that you can be prepared to file the form 5500 on time (due July 31st or extended October 15th). Be sure to review your records and contact your plan administrator so that you know if and when you will need an audit.
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