In an effort to address shortcomings in auditing procedures and reporting raised by the DOL, in July 2019, the Auditing Standards Board of the American Institute of Certified Public Accountants issued a revised Statement on Auditing Standards No. 136 entitled, “Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA” (“SAS 136”). SAS 136 applies to plan financial statement periods ending on or after December 15, 2021. The updated audit standards imposed by SAS 136 add new audit procedures and significantly shift the burden for producing many plan-related documents to the plan sponsor. The new requirements will make it essential for plan sponsors to be able to produce quality, error-free records that demonstrate compliance in areas like compensation, deferrals, distributions, and vendors’ fees. Even before these new standards went into effect, it was often difficult for plan sponsors to produce such documentation, particularly when it… Continue Reading
Plan participants now enroll, change elections, review benefits, apply for plan loans and hardship distributions, and access account information through websites and cellphone apps. As electronic access to plan information has increased, so has the interest of hackers in obtaining the wealth of information stored electronically. Recently, the DOL?ÇÖs Employee Benefits Security Administration (the ?Ç£EBSA?Ç¥) issued the following cybersecurity guidance documents to help plan sponsors comply with their duties to protect plan information: Tips for Hiring a Service Provider with Strong Cybersecurity Practices: These tips are intended to help plan sponsors and plan fiduciaries meet their duties under ERISA to prudently select and monitor service providers. They include a list of questions to ask and considerations to make when evaluating potential service providers. Cybersecurity Program Best Practices: This guidance provides a list of 12 best practices intended to help plan fiduciaries mitigate cybersecurity risks and make prudent decisions when selecting… Continue Reading
The safe harbor rules for hardship withdrawals from a retirement plan permit such withdrawals for expenses and losses incurred by a participant due to a natural disaster declared by the Federal Emergency Management Agency (?Ç£FEMA?Ç¥) under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, provided the participant?ÇÖs principal residence or principal place of employment at the time of the disaster was located in an area designated by FEMA for individual assistance related to that disaster. FEMA issued a series of disaster declarations as a result of the February 2021 winter storms that impacted portions of Texas, Louisiana, and Oklahoma. A list of counties that have been designated by FEMA for individual assistance in those states can be found on FEMA?ÇÖs website here. Those disaster declarations mean that affected participants may be eligible for hardship distributions from their 401(k) plan accounts. Plan sponsors with participants who live or work… Continue Reading
As a reminder, the last day that coronavirus-related distributions may be made from an eligible retirement plan to a qualified individual is December 30, 2020, and not December 31, 2020.?á Distributions may be included in income ratably over the 2020, 2021, and 2022 tax years or, if the participant elects, may be included entirely in income in 2020.?á For more information on coronavirus-related distributions, please see the IRS FAQs here.
Last year, the safe harbor rules for hardship withdrawals were amended to include a new subsection which permits hardship withdrawals for expenses and losses incurred by an employee on account of a disaster declared by the Federal Emergency Management Agency (?Ç£FEMA?Ç¥). Recently, FEMA issued a disaster declaration as a result of Hurricane Sally that impacted portions of Alabama and Florida on September 14, 2020. A list of areas covered by the disaster declaration can be found on FEMA?ÇÖs website. This disaster declaration means that affected participants may be eligible for hardship distributions under their 401(k) plans. Plan sponsors should review their 401(k) plan?ÇÖs hardship distribution provisions to ensure they contain either the updated safe harbor provisions specifically allowing hardship distributions for federally declared disasters or catch-all language allowing distributions on any permissible hardship under the Internal Revenue Code.
The IRS recently published an updated Operational Compliance Checklist (the ?Ç£Checklist?Ç¥), which lists changes in qualification requirements that became effective during the 2016 through 2020 calendar years. Examples of items added to the Checklist for 2020 include, among other things: Final regulations relating to hardship distributions; Temporary nondiscrimination relief for closed defined benefit pension plans; Penalty-free withdrawals from retirement plans for individuals in cases of birth or adoption; and Increase in age for required beginning date for mandatory distributions. The Checklist is only available online and is updated periodically to reflect new legislation and IRS guidance.?á The Checklist does not, however, include routine, periodic changes, such as cost-of-living increases, spot segment rates, and applicable mortality tables, which can instead be found on the IRS?ÇÖs Recently Published Guidance webpage here. The Checklist is available here.
In light of the recent economic developments stemming from the COVID-19 pandemic, many employers are evaluating their employee benefit plans and how employee and employer costs will be impacted. The following summary provides a list of questions we have been receiving from clients over the past week, along with action items to help employers address these issues. Health and Welfare Plans and Fringe Benefits Should benefits coverage continue while an employee is on an unpaid furlough? If so, how would the employee pay the employee?ÇÖs portion of the premium? Could the employee elect to drop coverage due to the reduction in hours of active service? Could the employer pay for coverage for some or all of its furloughed employees? Continued eligibility for benefits will depend on whether the employer treats the furlough as a termination of employment or as an unpaid leave of absence. The terms of the plan, including… Continue Reading
The IRS recently published final regulations addressing changes enacted by the Tax Cuts and Jobs Act of 2017, the Bipartisan Budget Act of 2018, and other prior changes to the tax code. The final regulations do not contain any substantive differences to the proposed regulations issued by the IRS in November 2018. The new final regulations: ?Çó Permit, but do not require, hardship distributions from a participant?ÇÖs elective contributions, QNECs, QMACs (including safe harbor matching contributions), and any earnings on those amounts, regardless of when they were contributed or earned. ?Çó Prohibit plans from containing a requirement that a participant may not contribute to the plan for any period of time following a hardship distribution (in other words, eliminate the six-month suspension rule). ?Çó Eliminate the requirement that a participant take out all available plan loans before receiving a hardship distribution (although plans may continue to contain such a requirement).… Continue Reading
The IRS recently published proposed regulations addressing changes enacted by the Tax Cuts and Jobs Act of 2017, the Bipartisan Budget Act of 2018, and other prior changes to the tax code. Specifically, the proposed regulations: Permit, but don?ÇÖt require, hardship distributions from a participant?ÇÖs elective contributions, QNECs, QMACs (including safe harbor matching contributions), and any earnings on those amounts, regardless of when they were contributed or earned Eliminate the requirement that a participant take out all available plan loans before receiving a hardship distribution (although plans may continue to contain such a requirement) Prohibit plans from containing a requirement that a participant may not contribute to the plan for any period of time following a hardship distribution (in other words, eliminate the six-month suspension rule). If a suspension is still being applied as of January 1, 2019 for a prior hardship distribution, a plan may eliminate the suspension as… Continue Reading