Employee benefit plans are categorized by the Department of Labor as small or large. The number of eligible participants as of the first day of the plan year is the determining factor as to whether a plan is considered to be a large plan. This factor is reassessed every year as of the beginning of the plan year.
A special ERISA rule exists that referred to as the 80-120 Rule. Stated simply, plans with up to 120 eligible participants as of the beginning of the plan year that were classified as a small plan in the prior year may continue to file as a small plan. Once the plan exceeds 120 eligible participants as of the beginning of the plan year, the plan classified as a large plan and an audit is required. In addition, in the plan’s year of formation, the 80-120 rule cannot be applied and an audit is required if the number of eligible participants at the origination of the plan exceeds 100, then an audit is required.
We started our plan in the middle of the year: Do we need an audit for this year?
Yes, if you have over 100 eligible participants when the plan was formed. However, if the first plan year is shorter than 7 months in duration, you may elect on Form 5500 to defer the audit of the first, short year until the audit is performed for the first full year plan year.
Help! We received a letter from the IRS / DOL telling us we need an audit and we owe a penalty!
Contact us – we can help. We will advise and assist with your IRS / DOL correspondence. Should an audit be needed, we can complete it quickly and efficiently.