Caron Bletzer News

Things for Plan Sponsors to Consider as the Year Winds Down

During 2020, there have been immediate and upcoming changes for the retirement plan industry that have affected and will continue to affect the plan operations. In addition to these changes, there are routine matters that Plan Sponsors will need to address before year end. Below are some things to consider as the year winds down:

  • Have you made the timely disclosures to plan participants, such as the 404(a) fee disclosures or the Summary Annual Report? It may be helpful to have a checklist with the required disclosures to ensure they are all appropriately, timely provided. Some additional guidance from the DOL can be found here regarding disclosures: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/reporting-and-disclosure-guide-for-employee-benefit-plans.pdf
  • For plan sponsors of defined benefit pension plans that utilized the CARES Act extension related to funding contributions, have you considered the timing of any additional payments? Payments were extended until January 1, 2021. As you are reviewing the funding schedule, it is important to consider that additional interest that will be owed on the delayed contributions.
  • Have you reviewed the annual required amendments list to ensure your plan compliances with the qualification requirements? The required amendments list can be found here: https://www.irs.gov/retirement-plans/required-amendments-list
  • Has it been decided if the 2021 plan year will be a safe harbor plan year for the Plan? If yes, has the safe harbor notice been timely distributed to participants? As a note, the SECURE Act eliminated the safe harbor notice requirement for non-elective safe harbor plans  for plan years beginning after December 31, 2019. For more information regarding the Safe Harbor notices, please visit the IRS website here: https://www.irs.gov/retirement-plans/notice-requirement-for-a-safe-harbor-401k-or-401m-plan
  • Have  required adjustments been made for the changes in the IRS contribution plan limits for the 2021 plan year? Although there has been no change in the employee deferral limit, the maximum contribution limit increased by $1,000 to $58,000 (not including catch-up contributions). In addition, the employee compensation limit for calculating employer contributions increased by $5,000 to $290,000.

Considerations While Wrapping up the 2019 EBP Audit Filings:

As plan sponsors are wrapping up their employee benefit plan filings and finalizing plan audits with their independent auditors, there are some things that should be considered related to subsequent event disclosures:

  • Did the plan sponsor encounter significant layoffs, terminations, etc. that may result in a partial plan termination?
  • Has there been a change in the financial status of the Company that may affect the ability of the Plan to continue as a going concern?
  • Has the Plan implemented changes related to the CARES Act or Secure Act? If yes, have participants been utilizing these new features?
  • Have there been decisions to freeze or terminate the Plan? Decisions to merge the Plan with another Plan?
  • Have there any significant amendments to the Plan that may require disclosure? For example, cessation of the employer matching contributions?

The 2019 Form 5500 filings for calendar year plans is just about 5 weeks away! As of this time, there has been no extension announced for the Form 5500 deadlines. This is a great time to have these conversations with your audit team to ensure any additional testing and disclosure is appropriately addressed.

Delay in Effective Date of SAS 136

The AICPA has made the decision to delay the effective date of SAS 136 (Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA) to be effective for periods ending on or after December 15, 2021. However, early implementation of this standard is permitted. The new SAS results in changes to the ERISA reporting standards to more clearly define the auditor’s role and work performed for the audit. There were also changes to the requirements in performing an ERISA audit.

In your role as plan management, what changes can you expect?

  • What historically has been known as a “limited scope audit” will now become a 103(a)(3)(c) audit.
  • In order to add more clarity over the information audited by the independent accountant, there will be a two-part opinion to separately address the information covered by the certification and the information not covered by the certification.
  • There will be expanded responsibilities for plan management.

What can you do to prepare:

  • Revisit your procedures to ensure your trustee/custodian is able to certify ALL investments held by the plan.
  • Review your plan documentation to ensure all documents are executed and amendments are current.
  • Revisit your procedures to review for the Plan’s ability to continue as a going concern.

 

Link to the SAS 136 standard issued by the AICPA  https://www.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledocuments/sas-136.pdf)

2018 Retirement Plan Limit Increases Announced

On Thursday, October 19th, the IRS announced new statutory limits for the upcoming 2018 year. The most important changes applicable to retirement plans are outlined below.

After holding the line for a couple of years, the IRS increased the employee elective deferral limit (the §402(g) limit) from $18,000 to $18,500, for contributions to 401(k) and 403(b) plans.  The same limit applies for most 457 plans.  The catch-up contribution limit for employees over age 50 remains unchanged at $6,000.

The §415(c)(1)(A) limit on total contributions to a defined contribution plan on behalf of an individual was increased from $54,000 to $55,000, and the §415(b)(1)(A) limitation on the annual benefit under a defined benefit pension plan increased from $215,000 to $220,000.

The dollar threshold for determining “highly compensated employee” status remains at $120,000 for the third year in a row, and the annual compensation limit under §401(a)(17) that governs the amount of compensation that may be considered in a defined contribution plan increased from $270,000 to $275,000.

Additionally, the taxable wage base for social security increased from $127,200 to $128,700.  For a full listing of changes, including those impacting IRAs, SEPs and SIMPLEs, please see the IRS’ COLA Table.

ERISA Benefit Plan Auditor Market Share: New England

ERISA Benefit Plans of New EnglandNE

6,080 ERISA benefit plans in the New England region plans obtained audits. Caron & Bletzer led the pack with 377 audited plans, and PwC was not far behind with 291 plans.

Source: http://www.auditanalytics.com/blog/leading-erisa-benefit-plan-auditors-in-california-texas-and-new-england/

Marcia Baker Promotion Announcement

It is with great pleasure that we announce the promotion of Marcia Baker, CPA to Principal effective January 1, 2017.  Since joining Caron & Bletzer, PLLC in 2006, she has focused her time on complex ERISA engagements including but not limited to employee stock ownership plan audits, 11-K filings and medical plan audits.

 

Marcia also oversees our internal staff development through a comprehensive training program focused on establishing a strong foundation in ERISA and audit skills so all of our staff provide the high quality service our clients have come to expect.  In her new role Marcia will continue to focus on providing high quality service to our clients and developing our team.

2017 Retirement Plan Limits Announced

Last Thursday, the IRS announced new statutory limits for 2017. The most important changes applicable to retirement plans are outlined below.

The most visible limits to the public, those that affect the amount participants can contribute to a plan, remain unchanged.  The §402(g) elective deferral (employee contribution) limit and the “catch-up” contribution limit both remain at $18,000 and $6,000, respectively, for 401(k), 403(b) and most 457 plans.

The §415(c)(1)(A) limit on total contributions to a defined contribution plan on behalf of an individual was increased from $53,000 to $54,000.

The §415(b)(1)(A) limitation on the annual benefit under a defined benefit pension plan increased from $210,000 to $215,000.

The dollar threshold for determining “highly compensated employee” status remains at $120,000, and the annual compensation limit under §401(a)(17) that governs the amount of compensation that may be considered in a defined contribution plan increased from $265,000 to $270,000.

Additionally, the taxable wage base for social security increased from $118,500 to $127,200.  For a full listing of changes, including those impacting IRAs, SEPs and SIMPLEs, please see the IRS’ COLA Table.

DOL outreach by email

 

The U.S. Department of Labor is expanding efforts to use technology to reach plan sponsors and other constituents to get its message out.  On November 19th, the Department did an educational email blast to many sponsors of employee benefit plans that require audits, on the hot topic of audit quality and picking a qualified CPA firm to perform this vital service.  In their email, they referred to their study on audit quality, released in May of this year, as well as providing links to resources sponsors can use to assist them in hiring qualified firms.  Their clear goal is to improve audit quality by getting sponsors to focus on hiring auditors with expertise in this specialized area.

 

This broad-based email follows targeted emails to plan sponsors that filed Form 5500 this year without an audit report attached.  These messages were sent out in the week following the October 15th filing deadline for calendar year end plans to those filers that omitted the audit report.  Although they did not start the “45-day period” for rejection of the 5500, they did contain case numbers, indicating a case has been opened, and are the promptest response the Department has ever made on deficient filings.  We believe they are hoping this early contact will inspire sponsors to complete (amend and attach an acceptable audit report with opinion) their 5500 filings in an expedited manner, which of course we strongly advise to avoid potential penalty exposure.

 

Both of these emails are new this year, but early indicators are that we can expect to see the DOL increase its use of email communication to reach out to constituents.   Formal notices (for example those that start the tolling of a statutory time period) will continue to be in writing and delivered by snail mail.

The U.S. DOL Issues New Report on Employee Benefit Plan Audit Quality

Last week, the U.S. Department of Labor (the “DOL”) issued a damning report on its latest study of the quality of required audits of employee benefit plans.  The report, titled “Assessing the Quality of Employee Benefit Plan Audits” can be accessed at the Department’s website, at www.dol.gov/ebsa/pdf/2014AuditReport.pdf.  The DOL reviewed 400 audits out of the over 81,000 performed by over 7,300 audit firms for the 2011 plan year.  They chose a stratified sample based on buckets determined by how many employee benefit plan audits the firms performed.  They found that overall, 39% of those audits had major deficiencies.  This is a decline in overall audit quality from a 33% deficiency rate in 2004, and is a cause for concern across the industry.

 

The DOL has indicated that audit quality is directly linked to the experience level of the firm, saying “the results of the audit study clearly indicate a link between the number of employee benefit plan audits performed by a CPA and the quality of the work performed”, and “Once again, the smaller the firm’s employee benefit plan audit practice, the greater the incidence of audit deficiencies”.    They also looked at the percentage of revenue that the employee benefit audit practice represented to the firm (is there specialization?), Employee Benefit Plan Audit Quality Center membership, the amount of continuing professional education obtained by auditors and other factors that might improve audit quality.

 

Firms performing one or two audits had deficiency ratings of almost 76%.  Those performing under 25 audits had deficiency ratings of 67%, and those performing under 100 still had deficiency ratings of 41.5%.  Collectively, these firms performed over 58% of audits in that year!  Firms performing over 100 audits had deficiency ratings of 12% (still unacceptable, in my mind!).

 

As a Plan sponsor, you have a fiduciary responsibility to engage an Independent Qualified Public Accountant (“IQPA”).  Based on the results of this study, many are failing at this task.  Both the DOL and AICPA have resources available to provide guidance in hiring a plan auditor.  We think this is a good time to provide those links again.  The AICPA booklet can be found at http://www.aicpa.org/interestareas/employeebenefitplanauditquality/resources/planadvisories/downloadabledocuments/ebpaqc-importance-of-hiring-plan-advisory.pdf and the DOL booklet at http://www.dol.gov/ebsa/pdf/selectinganauditor.pdf

 

As a result of this study, the DOL is proposing several steps, including legislative changes and education of plan sponsors.  This is an important read for all plan sponsors, and I would encourage you to take the time to review the report.

Hardship Distributions – IRS Issues Guidance to Plan Sponsors Clarifying Documentation Requirements

Recently, the IRS posted clear and concise guidance to plan sponsors regarding their responsibility to maintain documentation supporting hardship distributions.  In short, the article on their website states “the plan sponsor must obtain and keep hardship distribution records.  Failure to have these records available for examination is a qualification failure that should be corrected using the Employee Plans Compliance Resolution System (“EPCRS”).”  The IRS also confirms that a participant may only self-certify that the distribution was the only way for them to alleviate a hardship.  They can’t self-certify the nature of the hardship.

Similar guidance on obtaining and retaining loan documentation was also provided.

This posting has caused quite a stir in the retirement plan community, with at least one large third party administrator asking the IRS to withdraw or modify its article believing that the content is not supported by IRS regulations and is contrary to guidance provided by IRS representatives.

 

While attending employee benefit plan conferences, we have heard representatives from the IRS state that plan sponsors should obtain documentation for hardship distributions, and have it available for review upon examination.  As a best practice, we continue to recommend that plan management obtain, review and retain copies of hardship documentation for all hardship distributions.

 

http://www.irs.gov/Retirement-Plans/Its-Up-to-Plan-Sponsors-to-Track-Loans-Hardship-Distributions