| Dear Center Members: |
This alert contains information regarding:
- SECURE 2.0 Act of 2022
- Proposed changes to DOL VFCP and prohibited transactions exemption
- Changes to the Form 5500 for 2022 filings
- Revised AICPA EBP Audit and Accounting Guide (August 2022 version)
- Member benefit – AICPA employee benefit plan conference
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SECURE 2.0 Act of 2022
The SECURE 2.0 Act of 2022 (Act) was signed into law on December 29, 2022, to increase retirement savings, improve retirement rules, and lower employer costs of setting up a retirement plan. Plan amendments required by the Act generally need not be made until the end of the first plan year beginning on or after January 1, 2025; however, plans must be operated in accordance with the effective date of each new provision. Following is a summary of some of the significant provisions that may affect plan sponsors and auditors:
Autoenrollment/auto escalation. Effective for plan years beginning after December 31, 2024, new 401(k) and 403(b) plans must automatically enroll participants when they become eligible; employees may opt out of coverage. All 401(k) and 403(b) plans in effect on the date of enactment are grandfathered; small businesses with 10 or fewer employees, new businesses (i.e., those that have been in business for less than three years), church plans, and governmental plans are exempted from this provision.
Repeal and replacement of the Saver's Credit. A new "Saver's Match" will replace the current law nonrefundable "Saver's Credit" for certain individuals who make contributions to employer retirement plans. The match is subject to an income-based phase out and becomes effective for tax years beginning after 2026.
Required Minimum Distributions (RMDs). The RMD age will increase in 2023 and again in 2033. Starting in 2024, Roth accounts will be exempt from the RMD rules while the participant is alive.
Catch-up contributions. The catch-up contribution limit will increase for taxable years beginning after December 31, 2024. Starting in 2024, all catch-up contributions must be Roth contributions for participants with compensation equal to or in excess of $145,000.
Changes to long-term, part-time employees. The Act modifies the measuring period for long-term, part-time employees from three years to two years and also extends the long-term, part-time employee provision to 403(b) plans that are subject to ERISA.
Student loan payments. For plan years beginning after December 31, 2023, employers may make matching contributions under a 401(k) or 403(b) plan on employees' qualified student loan payments. Employees who receive such matching contributions are required to certify annually to the employer that such payment has been made on such loan.
Withdrawals for certain emergency expenses. The Act provides an exception from the 10% tax on certain early distributions made after 2023 that are used for emergency expenses which are unforeseeable or immediate family needs relating to personal or family emergency expense. Plan administrators generally may rely upon a participant's self-certification; however, the IRS is authorized to issue guidance to address situations in which a plan administrator has actual knowledge to the contrary or there are employee misrepresentations.
Increased dollar threshold for mandatory distributions. For distributions after December 31, 2023, the involuntary distribution threshold will increase from $5,000 to $7,000.
Pension linked emergency savings accounts (ESA). Beginning in 2024, DC plans may include an ESA for non-highly compensated employees; accounts are part of the plan document but accounted for separately. Employers may automatically opt their employees into these accounts, and all contributions must be made on an after-tax basis.
Recovery of retirement plan overpayments. Effective immediately, retirement plan fiduciaries have the discretion to not recoup overpayments mistakenly made to retirees. Where a plan's fiduciaries choose to recoup overpayments, collection efforts are subject to certain limitations and protections to safeguard retirees. Rollovers of the overpayments remain valid.
Compliance testing/corrections. The Act includes changes to the rules for top-heavy plan testing, expands the IRS Employee Plans Compliance Resolution System to allow more types of errors to be rectified internally through self-correction and exempt certain failures to make RMDs from the excise tax penalty, and allows for a grace period to correct, without penalty, reasonable errors in administering automatic enrollment and automatic escalation features occurring after December 31, 2023.
403(b) plans. The Act conforms the current hardship distribution rules for 401(k) plans to 403(b) plans and the long-term, part-time employee provision is extended to 403(b) plans that are subject to ERISA. In addition, 403(b) plans will now be allowed to invest in collective investment trusts (CITs). Beginning in 2023, 403(b) plans can join a multiple employer plan (MEP) or pooled employer plan (PEP).
Annual audits for groups of plans. The Act clarifies that each plan filing under a group of plans (added by the SECURE Act) is required to submit audited financial statements if it has 100 participants or more. Plans with fewer than 100 participants that are included in a group of plans are not required to submit audited financial statements.
Other. The Act amends qualified birth and adoption distribution rules, permits plans to distribute money to pay premiums for high-quality long-term care insurance products and allow withdrawals by participants who have experienced domestic abuse.
Click here to read the Senate staff comprehensive analysis of each section of the SECURE 2.0 Act.
Click here to read the SECURE 2.0 Act (included as Division T on pages 2,046 to 2,404 of the Consolidated Appropriations Act, 2023).
Proposed Changes to DOL Voluntary Fiduciary Correction Program and Prohibited Transactions Exemption
DOL issued a proposed amendment to its Voluntary Fiduciary Correction Program (VFCP) to simplify and expand the original VFC Program, including the establishment of a self-correction feature for certain delinquent participant contributions and loan repayments to pension plans (the SC Component). This amendment would provide excise tax relief for transactions that are corrected pursuant to the SC Component. The VFCP amendments also clarify some existing transactions eligible for correction under the Program, expand the scope of other transactions currently eligible for correction, and simplify certain administrative or procedural requirements for participation in and correction of transactions under the VFC Program.
DOL also proposed a separate rule that would amend the prohibited transaction exemption plans use to correct errors without paying higher taxes. Under the proposal, self-correcting plans would simply inform the agency that a correction has taken place via an online portal. The proposed change would eliminate the need for a formal application and no-action letter.
Comments are due on the proposals by January 20, 2023. The EBPAQC will inform members of the availability of the amended and restated VFCP and prohibited transactions exemptions when they are finalized.
Click here to read the proposed VFCP amendment.
Click here to read the proposed amendment to the prohibited transaction exemption.
Changes to the Form 5500 for 2022 Filings
The DOL and IRS have finalized changes to the Form 5500 Annual Return/Report of Employee Benefit Plan and Form 5500-SF Short Form Annual Return/Report of Employee Benefit Plan, and related instructions, that apply beginning with 2022 plan year reports.
The changes focus mainly on improvements in reporting on the actuarial and retirement plan schedules (Schedules MB, SB, and R) filed by defined benefit pension plans. The final rule also adopts additions to the plan characteristics codes reported on line 8 of Form 5500, and on line 9 of Form 5500-SF, to improve the data reported on defined contribution multiple employer plans, including pooled employer plans. The instructions also contain clarifying additions related to Part II of Form 5500 and Form 5500-SF that collect plan sponsor and plan administrator information. No changes to the department’s implementing regulations are required for these changes.
The notice includes appendices that illustrate the changes to the forms and instructions.
Click here to review the changes to the Form 5500.
2022 AICPA EBP Audit and Accounting Guide
The AICPA recently issued the 2022 edition of the Audit and Accounting Guide, Employee Benefit Plans (through August 1, 2022), which addresses the auditor's responsibilities under AU-C section 703, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, as well as new auditing standards, and includes:
- Conforming changes related to SAS No. 142, Audit Evidence.
- Information related to other standards issued but not yet effective on or before the "as of" date; they appear in "Guidance Update" boxes.
- Conforming changes due to the issuance of FASB Accounting Standards Update (ASU) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and related subsequent amendments.
- Conforming changes due to the issuance of FASB ASU No. 2016-02, Leases (Topic 842), and related subsequent amendments.
Click here to purchase the Essential A&A Research Collection and access to the AICPA Online Professional Library (subscription required).
Click here to order the print or e-book version.
May 8-10 AICPA Employee Benefit Plans Conference (in-person and live online) - Special Member Benefit
The AICPA Employee Benefit Plans Conference will be held May 8-10 at the Gaylord Rockies Resort & Convention Center, Denver, CO. This 2 ½ day event has in-person and live online options and offers up to 24 hours of CPE credit.
EBPAQC members qualify for a special $100 discount. Be sure to enter the coupon code "EBPAQC." Register by March 24, 2023, to receive an additional early bird discount of $100.
Click here to register for the May 8-10 AICPA Employee Benefit Plan Conference.
Sincerely,
AICPA Employee Benefit Plans Audit Quality Center |
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