Caron Bletzer News

Recently, the Department of Labor released a notice related to changes to the Form 5500 for plan years beginning on or after January 1, 2023. One of these changes is a change in the participant-counting methodology. Per the DOL Fact Sheet regarding this change, “The counting methodology for defined contribution retirement plans will be based on the number of participants with account balances, rather than the current method that counts individuals who are eligible to participate even if they have not elected to participate and do not have an account in the plan.”  

The participant count as of the beginning of the year determines whether an audit is required for the plan year. Plans with over 100 participants require an audit. As a result of this change in how participants are counted, your plan may no longer require an audit. If your plan has low participation, we recommend you contact your recordkeeper or third-party administrator to review whether your plan requires an audit for 2023.  

This change is intended to reduce expenses for some smaller plans. For more information regarding the other changes implemented for the 2023 Form 5500’s please refer to the DOL Fact Sheet here: 

https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/changes-for-the-2023-form-5500-and-form-5500-sf-annual-return-reports.pdf 

As the plan sponsor, it is your responsibility to oversee the plan operations and ensure compliance with all applicable laws, regulations and plan provisions. However, sometimes a breakdown in controls can occur and cause the Plan to not operate in accordance with your plan documents. If your team finds yourself in this situation, you may be wondering how you would go about correcting this issue. The IRS has a helpful “401(k) Plan Fix it Guide” that describes a variety of mistakes that may occur and how to find, fix and avoid the mistake going forward.  

 Link to Fix-it Guide: https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide  

The following are situations to consider and some helpful items your team can pull together prior to the plan audit: 

•  Were there any changes to the Plan or the Company during the year that should be communicated to your independent auditor, such as a payroll conversion or custodian transfer? 
•  Were there any issues your team ran into during the year, such as a new compensation code in payroll that was not properly setup as 401(k) or 403(b) eligible? Communicating these items to your independent auditor at the start of the audit will help with planning the audit. 
•  Review your permanent file to ensure you have copies of all of the executed and appropriate plan documents on file. 
• Prepare the year end census file that includes all employees, their demographic information, and compensation and contributions for the year. Typically, this file is also used for compliance testing purposes. The correction for certain testing failures may be to refund excess contributions by March 15, so it’s important to prepare the census file in a timely manner. 
•   Internally discuss the timing of the audit. If there are times during the year that are better for your team than others, communicate this to your independent auditor to help establish the timeline for the audit. 

If you are a current or potential client and you would like to discuss the audit process further with our team, we would be happy to have a phone call with you! Please feel free to contact our office at (603) 658-8000 to be connected to a team member. 

Cybersecurity threats are becoming more frequent and more sophisticated. In our everyday lives, we are seeing, hearing, or experiencing these threats across many platforms. Threats to retirement plans are no exception. To help participants address the risk and potential cybersecurity threats to their retirement plan accounts, the Employee Benefits Security Administration (“EBSA”), released guidance for plan participants to help address these threats called “Online Security Tips”.  Sharing this guidance with your plan participants can help them reduce the risk of these threats to their retirement plan accounts. If you have any questions regarding this information, please contact our offices to discuss this further!

Link to the EBSA publication: https://www.dol.gov/sites/dolgov/files/ebsa/key-topics/retirement-benefits/cybersecurity/online-security-tips.pdf

As retirement plans change to operate less in a paper environment and more in an electronic environment, this changes the risks for fiduciaries and plan management to consider. With this change to a more online presence of sensitive participant data, fiduciaries and plan management must consider controls to safeguard the retirement plan and the personally identifiable information. This month we will highlight the second publication produced by the Employee Benefits Security Administration (“EBSA”), “Cybersecurity Program Best Practices”. As fiduciaries of retirement plans, there are many responsibilities that must be managed and addressed, including cybersecurity. This publication will help fiduciaries navigate their responsibility related to cybersecurity and provide some best practices to mitigate the risk of cybersecurity threats. Below is a link to the guidance issued by EBSA. Come back next month for the third series regarding the recently issued cybersecurity guidance!

Link to the EBSA publication: https://www.dol.gov/sites/dolgov/files/ebsa/key-topics/retirement-benefits/cybersecurity/best-practices.pdf

Cybersecurity is continuing to be a growing focus in many industries. With this continued focus, the Employee Benefits Security Administration (“EBSA”) released initial guidance to assist parties-in-interest to retirement plans to help safeguard the retirement plans from potential cybersecurity threats. EBSA produced 3 different publications related to this guidance, with the first topic being “Tips for Hiring a Service Provider”. Service providers can be the custodian, trustee, recordkeeper, etc. of the Plan and can play a major role in administering a retirement plan. Selecting a service provider that has a robust cybersecurity program will be important for plan fiduciaries to review and monitor. Below is a link to the guidance issued by EBSA. Come back next month for the second series regarding the recently issued cybersecurity guidance!

Link to the EBSA publication: https://www.dol.gov/sites/dolgov/files/ebsa/key-topics/retirement-benefits/cybersecurity/tips-for-hiring-a-service-provider-with-strong-security-practices.pdf

There were updates to the Form 5500 Schedule H, for the 2020 plan year with the anticipation of the implementation of SAS 136, including updates to the Accountant’s opinion section. There has not been guidance issued related to how to complete this section for firms not early adopting SAS 136. However, during the 2021 AICPA Employee Benefit Plan conference, the Chief Accountant of the Department of Labor, Michael Auerbach, noted that for limited scope audits, the DOL prefers filers complete this section by checking the “unmodified” opinion under Part III question 3a and checking box “(1) DOL Regulation 2520.103-8” under question 3b.

During the Summer of 2019, the AICPA issued a new standard that is effective for periods ending on or after December 15, 2021. Within this standard, are changes to audit requirements, engagement acceptance procedures,  and communications related to findings.  Management responsibilities are also more explicitly defined and include, but are not limited to maintaining plan documents, following plan terms, and determining if an ERISA Section 103(a)(3)(c) audit (previously known as a limited scope audit) is permissible. Plan management will need to determine if the information is appropriately certified under 29 CFR 2520.103-8 and 29 CFR 2520.103-5. 

The EBPAQC has released a tool that plan management can utilize to help determine if an ERISA Section 103(a)(3)(c) audit is allowable for your plan: https://future.aicpa.org/resources/download/plan-management-erisa-section-103-a-3-c-audit-evaluation-tool

During 2018, FASB issued accounting standard update 2018-13 that is effective for plan years beginning after December 15, 2019, with early adoption permitted. This update relates to fair value measurement and its purpose is to help improve the footnote disclosures for the users of the financial statements. The changes prescribed in this update most likely to impact retirement plan financial statements include:

• Disclosure of the adoption of the accounting pronouncement, if applicable
• Elimination of the Level 3 rollforward for nonpublic entities
  1. In place of the Level 3 rollforward, disclosure is required related to the purchases, issuances, and transfers in and out of Level 3 investments.

Other provisions include:

• Removal of certain disclosures including: the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; the valuation process for Level 3 fair value measurements and for nonpublic entities, the changes in unrealized gains and losses for recurring Level 3 investments held at year end.
• Modifications to disclosures include those related to investments in certain entities that calculate net asset value with respect to the timing of liquidation of an investee’s assets and clarification of timing of any measurement uncertainty disclosure.
• Addition of certain disclosures for public entities including changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements, and more flexibility related to disclosure of range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

If interested in discussing this standard update and the impact on your plan’s financial statements, please call (603) 658-8000 and you will be connected with a team member.

Being a plan sponsor comes with a responsibility to fulfill certain fiduciary responsibilities when administering their retirement plan(s). Although some of these may be outsourced through a 3(16), 3(21) or 3(38) relationship with a service provider, this does not fully free the plan sponsor from meeting their fiduciary responsibilities. When services are outsourced, the plan sponsor should establish procedures to monitor the work of their service providers and review the fees paid from the plan for reasonableness. In addition, plan sponsors should form an oversight committee that meets on a regular basis to review and discuss their retirement plan(s). These discussions should be documented in the form of meeting minutes that are maintained in the company records. Maintaining proper consistent oversight is important in meeting the plan sponsor’s fiduciary responsibilities. 

For more information regarding plan oversight, please visit the following:

• Meeting your Fiduciary Responsibilities – DOL –https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/publications/meeting-your-fiduciary-responsibilities.pdf
• Selecting & Monitoring Pension Consultants – DOL – https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/selecting-and-monitoring-pension-consultants.pdf
• Selecting & Monitoring Service Providers – DOL – https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/tips-for-selecting-and-monitoring-service-providers.pdf
• For additional DOL publications, please visit: https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/retirement