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What is the 80 – 120 rule?

Published by Kim Moore on Feb 6, 2020 6:00:00 AM

Have you heard of something called the 80 – 120 Rule? Do you know how it might apply to your 401(k) Plan? 

As a general rule, when a Plan has more than 100 eligible participants it’s considered a “Large Plan”. This includes employees that are participating and those eligible, but not participating in your plan. A large plan entity must file the extended Form 5500 and have a Plan audit conducted by a certified public accountant.students_laptop_teacher_12538 - Copy

However, one exception to this general rule is, in the 80-120 Rule. If a Plan has more than 100 eligible participants, but less than 120 and you filed as a “Small Plan” in the previous year, you can remain as a “Small Plan” and file the Short Form 5500 in the current year. This rule will continue to apply until your Plan has more than 120 eligible participants. You are not required to conduct a Plan audit if you are filing the Short Form 5500.

On the other hand, if you filed as a “Large Plan” in the previous year and your participant count drops below 100, you are still required to file as a “Large Plan” and have an audit conducted until your eligible participant count drops below 80. 

Also, if it’s the first year for your Plan and you have over 100 participants, you must file as a Large Plan and attach an audit completed by a certified independent auditor.

Plan Record-keepers are often confused about this rule, so it is worth taking the time to check out your participant count before you begin the process of engaging an auditor for your first 401(k) Plan audit.

When it’s time for an audit for your plan it’s vital that you hire a trusted auditor. At Summit CPA we specialize in retirement plan audits. We have the ability to offer assistance entirely off-site with little or no distraction to your daily office routine.  We also offer flat-fee pricing so there are no surprises on your bill when the job is complete. For assistance contact our office at (866) 497-9761 to schedule an appointment.


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