The 80–120 Rule: Former employees can cost you money
Not many plan sponsors look forward to an audit and the associated fees, especially as an annual event. Every year plan administrators must file Form 5500, an annual benefit plan report, with the IRS. As part of the filing, federal law requires “large plans” to undergo an annual audit by an independent qualified public accountant. For “small plan” employers, the shift from the short form 5500-SF to the long form 5500 filing, with its 82 pages of instructions and accompanying auditor’s report (and fees), can be quite a shock. Your plan could be heading towards “large plan” status with the help of your former employees. If your plan has 100 or more participants on the first day of the plan year, it is considered a “large plan”. The number of participants is not just a simple count of actively contributing participants in the plan, your former employees could be part of the total. Participant count, for filing purposes, is the sum of all current employees who are eligible, whether