Dear Center Members: |
This alert discusses:
- DOL, IRS and PBGC proposal of SECURE Act implementation rules and Form 5500 revisions;
- provisions under the American Rescue Plan Act of 2021 (ARPA);
- IRS Notice 2021-48, Guidance on Single-Employer Defined Benefit Pension Plan Funding Changes under the American Rescue Plan Act of 2021;
- considerations for amending a previously filed Form 5500 to reflect any elections made under ARPA; and
- ARPA reporting considerations.
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DOL, IRS and PBGC propose SECURE Act implementation rules and Form 5500 revisions
The DOL Employee Benefits Security Administration (EBSA), IRS and the Pension Benefit Guaranty Corp. (PBGC) are seeking public comments on proposed revisions to the Form 5500 Annual Return/Report. At the same time, EBSA is publishing a notice of proposed changes to its implementing regulations under Title I of the Employee Retirement Income Security Act. In addition to implementing the SECURE Act, the proposed changes include a limited number of other improvements to the annual return/report forms and instructions.
Following are the key proposed forms revisions and the proposed changes to the DOL implementing regulations:
- Modify the Form 5500 Annual Return/Report and the DOL’s regulations to implement the SECURE Act requirement for the DOL and the Department of the Treasury to develop a consolidated annual report for groups of defined contribution retirement plans. The proposal would establish a new type of direct filing entity called a Defined Contribution Group Reporting Arrangement and add a new Schedule DCG (Individual Plan Information) that such reporting groups must file, in addition to meeting more generally applicable Form 5500 requirements for large pension plans.
- Modify the Form 5500 Annual Return/Report to reflect pooled employer plans as a new type of retirement plan and implement SECURE Act changes to multiple-employer pension plans’ reporting of participating employer information by establishing a new Schedule MEP (Multiple-Employer Retirement Plan Information). Additionally, for multiple employer welfare plans that provide medical benefits, the proposal would move the questions regarding participating employers that are currently part of the Form 5500 Annual Return/Report to the Form M-1 – Report for Multiple Employer Welfare Arrangement and Certain Entities Claiming Exception – and apply that reporting requirement to non-plan MEWAs that file the Form M-1.
- Improve financial reporting for retirement plans in general, including pooled employer plans, other MEPs and the new DCG reporting arrangements. The proposed improvements would add new fee and expense reporting requirements and enhance the format and content of the existing schedules of assets held for investment.
- Expand the number of defined contribution pension plans that would be eligible for small plan simplified reporting options, including the conditional waiver of the independent qualified public accountant annual audit.
- Add questions to improve financial and funding reporting by PBGC-covered defined benefit pension plans and to improve oversight and compliance of tax-qualified retirement plans.
If adopted, the proposed changes generally would be effective for plan years beginning on or after Jan. 1, 2022. Forms for the 2022 plan year are filed generally beginning in July 2023. A limited number of SECURE Act changes to MEP reporting of participating employer information and changes requiring reporting of basic identifying information for PEPs would apply to the 2021 plan year forms using an interim nonstandard attachment in place of the new Schedule MEP that would not apply until the 2022 plan year.
The EBPAQC Executive Committee and the EBP Expert Panel will review the proposals for comment. Publication of the proposals starts a 45-day comment period.
Click here for the DOL News Release, US Department of Labor Seeks Public Input on Proposed Implementation of SECURE Act Revisions to Form 5500 Employee Benefit Plan Reports.
American Rescue Plan Act of 2021 (ARPA) defined benefit pension plan guidance
On March 11, 2021, the American Rescue Plan Act of 2021 (ARPA) was signed into law to provide further funding relief for single employer pension plans in the form of interest rate stabilization and lengthen the period for amortizing funding shortfalls – specifically:
- Extends the 7-year amortization period for funding shortfalls to 15 years.
- Extends interest rate stabilization rules that were set for phase-out starting in 2021 and modified the interest rate floor and corridor.
IRS Notice 2021-48, Guidance on Single-Employer Defined Benefit Pension Plan Funding Changes under the American Rescue Plan Act of 2021, includes guidance on the changes to the funding rules.
The extension of the amortization period applies to all plan years beginning after December 31, 2021, while allowing for plan sponsors to elect to have this relief applied retroactively, starting for plan years beginning after December 31, 2018. The plan sponsor is deemed to have elected to apply the 15-year amortization period beginning with the first plan year for which the 15-year amortization is used on a filing (that is, the first Form 5500 filed for a plan year beginning in 2019, 2020, or 2021, where the Schedule SB reflects the 15-year amortization period).
The relief related to interest rates (providing a 5% floor on the 25-year average of interest rates and extending the interest rate corridors) by default will be applicable to plan years beginning after December 31, 2019. A plan sponsor can make an election to waive this relief with respect to plan years beginning in 2020 or 2021. These elections are required to be made by the later of the last day of the plan year beginning in 2021, or December 31, 2021.
The impact of ARPA affects each plan differently; however, as a result of ARPA most plan sponsors will see reductions in their minimum required contributions calculated under prior law. Some plan sponsors may be eligible to redesignate all, or a portion of, a contribution that was originally designated as applying for the plan year beginning in 2019 or 2020 as a contribution for the immediately succeeding plan year. Any redesignation made under the new guidance applies only if the contribution could have been designated as made for that immediately succeeding plan year. Redesignation is also only permitted if the original designation was made on a Schedule SB filed on or before October 15, 2021.
For plan sponsors that have not funded the minimum required contribution under previous legislation as of plan year-end, consideration will need to be given to the collectability of contributions accrued in the plan’s financial statements as of year-end.
If a plan sponsor amends a previously filed Form 5500, auditors will want to consider how the amended Form 5500 may affect subsequent audited financial statements and the auditor’s report. In addition, the plan auditor will want to discuss with plan management how amendments made by ARPA may affect the plan’s minimum required contribution for the 2020 plan year that will be reported in the plan financial statements and the Form 5500 (Schedule H, Financial Information and Schedule SB, Single-Employer Defined Benefit Plan Actuarial Information).
Following are considerations for reporting any elections made under ARPA that affect the minimum required contribution for the 2020 plan year in the plan financial statements and Form 5500:
- For GAAP financial statement reporting purposes employer contributions receivable are amounts due to the plan as of the financial reporting date. Amounts due include those pursuant to formal commitments as well as legal or contractual requirements. FASB ASC 960-310-25 provides GAAP guidance for recognition of contributions receivable in the plan's financial statements. Paragraphs 6.56-6.65 of the AICPA Audit and Accounting Guide: Employee Benefit Plans summarizes the financial statement reporting guidance for contributions and contributions receivable, including what may be considered evidence of a formal commitment, and includes recommendations from the AICPA's Financial Reporting Executive Committee (FinREC).
- Plan management is responsible for determining how to present employer contributions (including any receivable) on Schedule H. The instructions to Schedule H, Part I state that this schedule can be completed using the cash, modified cash, or accrual basis as long as one method is used consistently. The instructions for reporting employer contribution receivables on line 1b(1) of Schedule H state "noncash basis filers must include contributions due the plan by the employer but not yet paid."
- ERISA requires an explanation of the differences, if any, between the information contained in the plan's financial statements and the amounts reported on Schedule H. If employer contributions on Schedule H are presented in conformity with GAAP consistent with the plan's financial statements, there would be no difference requiring explanation in the plan's financial statements.
- The plan administrator must obtain a completed Schedule SB that is prepared and signed by the plan's actuary to include in the Form 5500 filing. Contributions made to the plan are reported in Part IV of Schedule SB and include contributions designated for the plan year or those allocated to unpaid minimum required contributions for a prior plan year.
- If the plan administrator determines it is necessary to amend Schedule SB to reflect any elections made under ARPA that affect the minimum required contribution, this would not result in the need to revise the employer contribution amounts in the plan's audited financial statements. If the plan administrator determines that Schedule H needs to be amended, plan management will need to consider whether the difference between Schedule H and the plan's financial statements affects the disclosures in the financial statements.
ARPA also provides various types of relief to multiemployer pension plans. For example:
- For a multiemployer plan in endangered, critical, or critical and declining status, the plan may retain its 2019 funding status for plan years that begin in 2020 or 2021.
- For plan years beginning in 2020 or 2021, a multiemployer plan in endangered and critical status may extend its funding improvement plan or rehabilitation period by five additional years.
- For the first two plan years ending after February 29, 2020, a multiemployer plan may use a 30-year amortization base to spread out COVID-related loses.
- For plans in critical and declining status in any plan year beginning in 2020 through 2022, certain troubled multiemployer plans can apply to the Pension Benefit Guaranty Corporation (PBGC) for financial assistance that does not have to be repaid. Under the program, the PBGC generally must provide enough assistance to allow plans to pay all benefits due through 2051. Plans that receive financial assistance must restore any previously suspended benefits and cannot make any new benefit cuts. Financial assistance received may be used to make benefit payments and pay plan expenses, and any earnings must be segregated from other plan assets and are to be invested in investment-grade bonds or other investments permitted by the PBGC. In providing this relief, the PBGC is to prioritize plans that are insolvent, that require more than $1 billion of financial assistance or that have suspended benefits under the Multiemployer Pension Reform Act of 2014.
Sincerely,
AICPA Employee Benefit Plans Audit Quality Center |
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