29 Mar Understanding the 80-120 Rule for retirement plans
Your retirement plan size might affect your tax filing status and potential for an audit
by Toby Regal, Lead Consultant
In general, employers sponsoring retirement plans with under 100 participants are categorized as ‘small’ plans, and employers with 100 or more participants are ‘large’ plans, which require a plan audit. The 80-120 Rule states that if an employer has between 80-120 participants they may choose to file using the same category as the previous year, meaning that if they filed as a ‘small’ plan, they may file again as a ‘small’ plan and vice versa.
For employers that hover around 100 participants, this provides flexibility by not having to switch back and forth between filing as a ‘small’ or ‘large’ plan based on being just under or just over 100 employees. It may also eliminate the inconvenience and potential cost of a retirement plan audit.
Accurately determining the total number of participants will allow you to make the decision for your business.