As 2015 draws to a close, plan sponsors will begin compiling data for the year-end census and ultimately, the annual reporting filing. Plan sponsors satisfy this requirement by filing the Form 5500. The version of the Form 5500 – and the required schedules – depends on the size of the plan.

Generally speaking, if a plan has 99 or fewer plan participants at the beginning of the plan year, it is classified as a small plan.   If a plan has 100 or more plan participants at the beginning of the year, it is a large plan – and required to have an audit. These participant counts are reported on the annual Form 5500 filing.

For a defined contribution plan, such as a 401(k) Plan, the number of participants reported on the Form 5500 must include: a) any employee who is eligible to participate in the plan (regardless if they are actually participating in salary deferrals), and b) retired or terminated employees who still have an account balance in the plan.

Although counting the number of plan participants seems like it would be simple, there are common mistakes that plan sponsors sometimes make when reporting the number of plan participants. For example, a plan sponsor may be incorrectly counting only those participants who made salary deferrals into the plan during the year. If an employer has 125 eligible employees, but only 60 employees are contributing to the plan, the plan technically has 125 eligible participants. Additionally, a plan sponsor may only count those participants who have account balances, which is another mistake.

This potential underreporting of the number of participants could be costly to the plan sponsor, who may need several years of plan audits because participant counts were not done correctly in the past.

If you have any questions, please contact Ken Kobiernicki or your ORBA advisor at 312.670.7444. Visit ORBA.com for more information about our Employee Benefits Group.