A plan had more than 120 participants not too long ago. Due to economic conditions, the participant count is now 84. The client's CPA is stating that the plan can now file as a small plan, thereby avoiding the audit. Is this too good to be true? I thought that once a plan filed as a large plan, they had to continue to do so. I apologize for the simplicity of this question, but my supervisor wants a regulatory citation supporting the correct answer, and I cannot find one. Any assistance will be appreciated. Thank you.

5500 Instructions:
"Generally, a return/report filed for a pension benefit plan or welfare benefit plan that covered fewer than 100 participants as of the beginning of the plan year should be completed following the requirements below for a ‘‘small plan,’’ and a return/report filed for a plan that covered 100 or more participants as of the beginning of the plan year should be completed following the requirements below for a ‘‘large plan.’’

Use the number of participants required to be entered in line 6 of the Form 5500 to determine whether a plan is a “small plan” or “large plan.”

Exceptions:
(1) 80-120 Participant Rule: If the number of participants reported on line 6 is between 80 and 120, and a Form 5500 was filed for the prior plan year, you may elect to complete the return/report in the same category (‘‘large plan’’ or ‘‘small plan’’) as was filed for the prior return/report. Thus if a return/report was filed for the 2001 plan year as a small plan, including the Schedule I if applicable, and the number entered on line 6 of the 2002 Form 5500 is 100 to 120, you may elect to complete the 2002 Form 5500 and schedules in accordance with the instructions for a small plan."