Accounting Resources for Mid-Pandemic 401(k) Plan Administration
Employee benefit plans can be a win-win for employers and employees. With the right 401(k) plan, employers can attract and retain top talent and incentivize employee performance. More and more, especially since the onset of COVID-19, employee benefit plans are under intensified scrutiny, as regulatory changes and timely amendment adoption requirements have intensified the Federal Government’s watchful eye. To maintain a cost-effective plan that provides no fuel for regulatory-agency fire, plan administrators need the right accounting resources in place.
Accounting resources help plan administrators ensure the plan document is compliant with ever-changing tax law.
Plan administrators must ensure plan administration and operations occur in accordance with the plan document. Some of the most common errors in 401(k) plan administration stem from an incorrect application of the plan’s definition of compensation or distribution eligibility. With current legislation evolving rapidly, understanding how new and evolving legislation interplay with your existing plan document is critical now more than ever.
Regulatory changes might not fall neatly in line with your plan’s year-end; nonetheless, your plan document must reflect changes in the law. You may need to make interim amendments or take corrective action for missed amendments to avoid noncompliance issues. For example, the CARES Act suspended the RMD requirement for 2020. Plan administrators must uphold compliance with the suspension for 2020 and adopt plan amendments by the last day of their plan year beginning in 2022.
Accounting resources help plan administrators understand changes in effect due to the coronavirus pandemic, such as loans and coronavirus-related distributions.
Under the CARES Act, 401(k) plans were allowed to opt-in to increase loan limits for qualifying individuals to up to 100% of their balance, up to a maximum of $100,000, for loans taken through September 22, 2020. Now, administrators of plans that opted-in are dealing with these outstanding loans, repayment terms, and related federal filing requirements. Plan administrators must be diligent in recordkeeping, reviewing existing plan terms, and tracking these loans. Any loan payment that was due between March 27, 2020, and December 31, 2020, could be delayed for one year, which means you could have loan payments coming due very soon. For 1099R purposes, plan administrators must ensure loans are not reported in default during the extended period for repayment.
For IRS purposes, plan administrators must maintain accurate, detailed records for both coronavirus-related distributions and repayments. Under the CARES Act, coronavirus-related distributions would have been made between January 1, 2020, and December 31, 2020. If the participant repays the distribution amount into a retirement plan within three years, it is not subject to income tax. If it is not repaid in three years, income tax may be recognized ratably over the three years.
Accounting resources help plan administrators ensure plan financial statements align with AICPA standards.
A 401(k) plan audit takes a team of knowledgeable professionals. To ensure a successful audit, plan administrators have to work in tandem with sponsors, third-party administrators (TPA), trustees, custodians, and advisors. Accounting resources help bring these parties together for an audit that aligns with AICPA standards and DOL rules and regulations. They also help your team stay alert to effective dates for implementation of new and evolving standards. For example, the AICPA Accounting Standards Board (ASB) issued SAS 136 and SAS 137 back in 2019, but required
implementation has not yet come to pass. Since the AICPA’s coronavirus-related deferral was issued in April, these standards now change the procedures effective for plan periods ending on or after December 15, 2021, for 401(k)s that are subject to financial statement audits.
Contact Livingston & Haynes
L&H’s team of employee benefits specialists can assist in providing accounting and advisory services as you navigate new and evolving legislation. We also perform financial statement reviews, compilations, and audits, including those for 100+ employee plans as required by the U.S. DOL, file Forms 5500 as required by ERISA, and perform agreed-upon procedure and SOC engagements.
To discuss your 401(k) accounting, auditing, tax, and advisory needs, contact me today.
by Wendi Haynes, CPA
Wendi Haynes, CPA, serves as Livingston & Haynes’ Managing Partner and has been with the firm for over 30 years. Wendi has extensive experience providing accounting, auditing, tax, and advisory services for employee benefit plans, small business, and nonprofit organizations.