401k Audits

Americans depend on employer sponsored retirement plans such as 401(k), 403(b), and others to help fund retirement savings. The various features offered in these plans often make it easier to start and continue saving over the years. Unfortunately, 57 percent of workers still don’t have access to an employer-sponsored retirement plan which is a cause for concern. In fact, the reality is that many older Americans are outliving retirement savings creating an unexpected and unwanted situation. To address this issue, Congress is examining several different laws which would make plans more accessible and retirement funds easier to use.

Required minimum distributions (RMDs) can be tricky. The IRS mandates that once a person reaches a certain age – currently age 72 – they must make mandatory withdrawals from certain retirement accounts every year. Fail to withdraw the right amount of money, and the individual gets a 50 percent excise tax.

There are many similarities between a 401(k) and 403(b) plan. In fact, they are so alike many often assume the main difference is that one is offered by nonprofits and the other is not. Despite this, there are important differences that illustrate the unique challenges 403(b) plan sponsors face. One prominent example is the universal availability rules. Under this requirement, plans must ensure that when one employee participates in the plan that others have the same opportunity. It often requires that management take a proactive approach to communication.

Before COVID-19, changes to participant elections needed to be done in person with a notary or plan representative. Since March 2020, plan sponsors have had the option of permitting participants to make changes of election remotely. That relief was set to expire on June 30, 2022. However, the IRS recently announced new extended temporary relief for physical presence requirements to December 31, 2022 – and there seems to be talk of making it permanent.

Employer-sponsored retirement plans are one of the best ways to improve recruitment and retention. Concurrently, it is one of the most effective tools for helping employees reach retirement saving goals. Yet cost remains a top issue for small business owners because many plan types can be expensive to operate due to the complex regulatory requirements mandated in the Employee Retirement Income Security Act of 1974 (ERISA). While most of these apply to plans with over 100 participants, even small plans have certain requirements which must be followed. The challenge of managing such costs often prevents many Atlanta small businesses from offering a 401k, or other retirement plan option.  

Nondiscrimination testing ensures equity amongst all participants by examining elective contribution rates, company contributions, and the percentage of plan assets that belong to highly compensated employees (HCEs). The test determines there is no discrimination that favors HCEs.

Like most things in the new year, the cost of ERISA penalties for employee benefit plan violations is going up. The Employee Benefits Security Administration (EBSA) adjusted the penalty amounts for violations after January 14, 2022. The adjustments occur annually and are indexed for inflation, so while the adjustment itself isn’t a new development, the increased penalty amounts are something Atlanta plan sponsors need to be aware of. Now, it is important to note these amounts represent the maximum fine that can be levied, but the Department of Labor (DOL) reserves the right to make adjustments based on specific circumstances.

Atlanta businesses required to undergo an annual financial statement audit will notice several new changes to the auditor’s report. Outlined in the Statement on Auditing Standards (SAS) 134 – Auditor Reporting, the modifications are designed to increase the value of the report to management. The changes have been years in the making – going back to 2011 when the Accounting Standards Board began the path to more consistent auditing standards for all entities. In 2015, the Public Company Accounting Oversight Board (PCAOB) and the International Accounting Standards Board (IASB) made changes to auditor report requirements, which paved the way for SAS 134. Much like other standards updates, the changes outlined in SAS 134 will help to make the auditor’s report more useful and transparent to financial statement users.

For many years there has been concern about the accuracy, consistency, and quality of ERISA plan audits. Originally introduced as part of the Employee Retirement Income Security Act (ERSA), the audits are designed to ensure plans comply with established governance, financial reporting, and other standards. The depth of the problem came into focus when the DOL published, Assessing the Quality of Employee Benefit Plan Audits in 2015. In the report, it was found that 40% of audits contained major deficiencies. The report was full of such unfavorable findings which called into question the effectiveness of both the audit standards and firms providing the service.

Saving for retirement is an important step that every Atlanta individual and family needs should prioritize, at the right time, to ensure there will be enough for the golden years. Unfortunately, when seismic events like an unexpected global pandemic, even the best-laid plans can be cast aside. The unfortunate result of the forced business closures and stay-at-home orders meant that unemployment increased at robust rates. Many were left in unexpected situations where retirement savings was likely not top of mind. Despite these conditions, it appears optimism about meeting retirement savings goals was not impacted.