Form 5500 and the “80-120 Rule”
“My client was told by the record-keeper for her plan that it would be filing the plan’s IRS Form 5500 annual report under the “80-120 Rule.” Can you explain what that rule is?
ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.
Highlights of the Discussion
Generally, plans with more than 100 participants are required to file the long version of Form 5500, Annual Return/Report of Employee Benefit Plan, as a “large plan.” However, there is an exception referred to as the “80-120 participant rule” that allows certain plans that would otherwise be considered large to continue to file as “small plans” following the streamlined Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, requirements (see 2018 Form 5500 Instructions).
The DOL defines small plans for Form 5500 purposes as plans with fewer than 100 participants at the beginning of the plan year. Small plans file Form 5500-SF and Schedule I Financial Information—Small Plans, (instead of Form 5500 and Schedule H Financial Information), plus certain other applicable schedules. However, small plans, typically, are exempt from the independent audit requirement that applies to large plans.
Under the 80-120 participant rule, if your client filed as a small plan last year and the number of plan participants is fewer than 121 at the beginning of this plan year, your client may continue to follow the Form 5500-SF requirements for this year.
EXAMPLE: For the 2017 plan year, Smally’s Inc., had 93 participants, so the plan administrator filed a Form 5500-SF and applicable schedules as a small plan. The number of plan participants at the beginning of the 2018 plan year rose to 112. Under the 80-120 participant rule, Smally’s Inc., may elect to complete the 2018 Form 5500-SF, instead of the long-form Form 5500 and schedules, in accordance with the instructions for a small plans.
The 80-120 participant rule may allow some plans that would otherwise be required to follow the arduous large plan filing requirements for Form 5500 to, instead, continue to file under the streamlined Form 5500-SF process.