If you are a growing small business, you may want to take another look at your company’s retirement plan. Each retirement plan covered under Title I of the Employee Retirement Income Security Act of 1974 must file an annual report. Retirement plans with less than 100 participants at the beginning of the plan year can be considered small plans while those with more than 100 participants can be considered large plans. Large plans will need to be audited in addition to filing an annual report.
However, what happens if the number of participants is less than 100 one year and more than 100 the next year? Can you continue to file as a small plan and avoid the audit? This is when the 80-120 participant rule comes in handy. Under this rule, plan sponsors are given a relief from having to switch between a small plan and a large plan every year. Plans with between 80 and 120 participants at the beginning of the current plan year may be able to file under the same category (i.e. large vs. small plan) that was used in the prior year. Below is a chart to guide you through the process of determining the current year’s plan category and, whether or not your retirement plan needs an audit.
| Number of Participants at the Beginning of the Current Plan Year | Prior Year Plan Category | Current Year Plan Category |
|---|---|---|
| Less than 80 | Small Plan | Small Plan - No Audit |
| Less than 80 | Large Plan | Small Plan - No Audit |
| 80-99 | Small Plan | Small Plan - No Audit |
| 80-99 | Large Plan | Many elect to file again as a large plan or switch to a small plan |
| 100-120 | Small Plan | May elect to file again as a small plan or switch to a large plan |
| 100-120 | Large Plan | Large Plan - Need Audit |
| More than 120 | Small Plan | Large Plan -Need Audit |
| More than 120 | Large Plan | Large Plan - Need Audit |
Senior Manager Ravann Sowa’s expertise includes employee benefit plan audits, financial statement audits, reviews and compilations. Personable and responsive, Ravann also has deep industry experience in government contracting, nonprofits and investment companies.
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