Caron Bletzer News

The U.S. Department of Labor is expanding efforts to use technology to reach plan sponsors and other constituents to get its message out.  On November 19^th, the Department did an educational email blast to many sponsors of employee benefit plans that require audits, on the hot topic of audit quality and picking a qualified CPA firm to perform this vital service.  In their email, they referred to their study on audit quality, released in May of this year, as well as providing links to resources sponsors can use to assist them in hiring qualified firms.  Their clear goal is to improve audit quality by getting sponsors to focus on hiring auditors with expertise in this specialized area.

This broad-based email follows targeted emails to plan sponsors that filed Form 5500 this year without an audit report attached.  These messages were sent out in the week following the October 15^th filing deadline for calendar year end plans to those filers that omitted the audit report.  Although they did not start the “45-day period” for rejection of the 5500, they did contain case numbers, indicating a case has been opened, and are the promptest response the Department has ever made on deficient filings.  We believe they are hoping this early contact will inspire sponsors to complete (amend and attach an acceptable audit report with opinion) their 5500 filings in an expedited manner, which of course we strongly advise to avoid potential penalty exposure.

Both of these emails are new this year, but early indicators are that we can expect to see the DOL increase its use of email communication to reach out to constituents.   Formal notices (for example those that start the tolling of a statutory time period) will continue to be in writing and delivered by snail mail.

Last week, the U.S. Department of Labor (the “DOL”) issued a damning report on its latest study of the quality of required audits of employee benefit plans.  The report, titled “Assessing the Quality of Employee Benefit Plan Audits” can be accessed at the Department’s website, at www.dol.gov/ebsa/pdf/2014AuditReport.pdf.  The DOL reviewed 400 audits out of the over 81,000 performed by over 7,300 audit firms for the 2011 plan year.  They chose a stratified sample based on buckets determined by how many employee benefit plan audits the firms performed.  They found that overall, 39% of those audits had major deficiencies.  This is a decline in overall audit quality from a 33% deficiency rate in 2004, and is a cause for concern across the industry.

The DOL has indicated that audit quality is directly linked to the experience level of the firm, saying “the results of the audit study clearly indicate a link between the number of employee benefit plan audits performed by a CPA and the quality of the work performed”, and “Once again, the smaller the firm’s employee benefit plan audit practice, the greater the incidence of audit deficiencies”.    They also looked at the percentage of revenue that the employee benefit audit practice represented to the firm (is there specialization?), Employee Benefit Plan Audit Quality Center membership, the amount of continuing professional education obtained by auditors and other factors that might improve audit quality.

Firms performing one or two audits had deficiency ratings of almost 76%.  Those performing under 25 audits had deficiency ratings of 67%, and those performing under 100 still had deficiency ratings of 41.5%.  Collectively, these firms performed over 58% of audits in that year!  Firms performing over 100 audits had deficiency ratings of 12% (still unacceptable, in my mind!).

As a Plan sponsor, you have a fiduciary responsibility to engage an Independent Qualified Public Accountant (“IQPA”).  Based on the results of this study, many are failing at this task.  Both the DOL and AICPA have resources available to provide guidance in hiring a plan auditor.  We think this is a good time to provide those links again.  The AICPA booklet can be found at http://www.aicpa.org/interestareas/employeebenefitplanauditquality/resources/planadvisories/downloadabledocuments/ebpaqc-importance-of-hiring-plan-advisory.pdf and the DOL booklet at http://www.dol.gov/ebsa/pdf/selectinganauditor.pdf

As a result of this study, the DOL is proposing several steps, including legislative changes and education of plan sponsors.  This is an important read for all plan sponsors, and I would encourage you to take the time to review the report.

Recently, the IRS posted clear and concise guidance to plan sponsors regarding their responsibility to maintain documentation supporting hardship distributions.  In short, the article on their website states “the plan sponsor must obtain and keep hardship distribution records.  Failure to have these records available for examination is a qualification failure that should be corrected using the Employee Plans Compliance Resolution System (“EPCRS”).”  The IRS also confirms that a participant may only self-certify that the distribution was the only way for them to alleviate a hardship.  They can’t self-certify the nature of the hardship.

Similar guidance on obtaining and retaining loan documentation was also provided.

This posting has caused quite a stir in the retirement plan community, with at least one large third party administrator asking the IRS to withdraw or modify its article believing that the content is not supported by IRS regulations and is contrary to guidance provided by IRS representatives.

While attending employee benefit plan conferences, we have heard representatives from the IRS state that plan sponsors should obtain documentation for hardship distributions, and have it available for review upon examination.  As a best practice, we continue to recommend that plan management obtain, review and retain copies of hardship documentation for all hardship distributions.

http://www.irs.gov/Retirement-Plans/Its-Up-to-Plan-Sponsors-to-Track-Loans-Hardship-Distributions

IRS issues Rev. Proc 2015-28 to provide new safe harbor Employee Compliance Resolution System (“EPCRS”) correction methods relating to plans with automatic contribution features AND special safe harbor correction methods for plans (including plans with automatic contribution features) that have failures that are of limited duration and involve elective deferrals. These new methods are less costly and should reduce the administrative burden on plan sponsors trying to correct participant contribution errors.  In summary:

• If the 403b or 401k plan provides for automatic contribution features and the failure is discovered within 9 ½ months after the end of the plan year in which the error occurred, the sponsor just needs to implement the election.  No QNEC is required but as in the past, 100% of the match plus earnings needs to be remitted.  Failures include missed auto enrollment, missed auto escalation AND missed affirmative elections or changes.

• For all 403b and 401k plans with elective contributions, not just those with automatic contribution features, if the failure is discovered within 3 months of its occurrence, the sponsor just needs to implement the election.  No QNEC is required but as in the past, 100% of the match plus earnings needs to be remitted.

• For all 403b and 401k plans with elective contributions, not just those with automatic contribution features, if the failure is discovered after 3 months but before the last day of the second plan year following the year in which the failure occurred, the sponsor needs to make a QNEC of 25% of missed deferrals and 100% of the match plus earnings.

There are new participant notification requirements if you plan to use these correction methods as well as new options for calculating lost earnings.  This Rev. Proc. modifies the existing EPCRS program spelled out in Rev. Proc. 2013-12.  We have the expertise to assist you in understanding and applying these corrections.

The IRS has announced the new COLA increases for qualified plan limits for 2015. The most significant changes that will likely affect your retirement plans are outlined below.

The §402(g) elective deferral (employee contribution) limit and the “catch-up” contribution limit increased from $17,500 to $18,000 and $5,500 to $6,000, respectively, for 401(k), 403(b) and most 457 plans.

The dollar threshold for determining “highly compensated employee” status increased from $115,000 to $120,000, and the annual compensation limit under §401(a)(17) that governs the amount of compensation that may be considered in a defined contribution plan increased from $260,000 to $265,000.

The §415(c)(1)(A) limit on total contributions to a defined contribution plan was increased from $52,000 to $53,000.

The §415(b)(1)(A) limitation on the annual benefit under a defined benefit pension plan remained at $210,000.

Additionally, the taxable wage base for social security increased from $117,000 to $118,500.  For a full listing of changes, including those impacting IRAs, SEPs and SIMPLEs, please see  the IRS’ COLA Table.

C&B Race team 2014

We had a great time at the Cigna/Elliot 5k in August.  We are proud to say that fifteen Caron & Bletzer team members participated in 2014.  The photo is missing three great team members (Kelsey, Marcus, and Matt B) who missed the photo op, but made it just in time to run!

The IRS announced yesterday the new limits for 2014. The most important changes applicable to retirement plans are outlined below.

The §415(c)(1)(A) limit on total contributions to a defined contribution plan was increased from $51,000 to $52,000.

The §415(b)(1)(A) limitation on the annual benefit under a defined benefit pension plan increased from $205,000 to $210,000.

The dollar threshold for determining “highly compensated employee” status remains at $115,000, and the annual compensation limit under §401(a)(17) that governs the amount of compensation that may be considered in a defined contribution plan increased from $255,000 to $260,000.

The §402(g) elective deferral (employee contribution) limit and the “catch-up” contribution limit both remain unchanged at $17,500 and $5,500, respectively, for 401(k), 403(b) and most 457 plans.

Additionally, the taxable wage base for social security increased from $113,700 to $117,000.  For a full listing of changes, including those impacting IRAs, SEPs and SIMPLEs, please see  the IRS’ COLA Table.

Congratulations to team Caron & Bletzer for their outstanding effort in the 21st Annual Cigna/Elliot Corporate 5K Road Race in Manchester, NH!  The race is a celebration of health and fitness and a great way to build team spirit.  Our women’s team finished 25th out of 116 teams while the men were 65th of 99.  Great job everyone! 

Team Caron & Bletzer

The Department of Labor (“DOL”) issued Field Assistance Bulletin (“FAB”) 2013-02 on July 22, 2013, extending the deadline for plan sponsors to make their second round of required 404(a)(5) participant fees disclosures.  The 404(a)(5) regulations, effective in 2012, required plan sponsors to provide certain fee disclosure information to participants by August 30, 2012.  The regulations also required that the disclosures be made annually to participants no later than the anniversary of the initial date they were provided in 2012.  For example, if in 2012 a plan sponsor provided the disclosures on July 31, 2012 then the 2013 disclosures would be due no later than July 31, 2013.

FAB 2013-02 extended enforcement of the 12 month deadline , as set forth by the regulations, to 18 months, effective for the second round of 404(a)(5) disclosures.  In the above example, the plan sponsor now has until January 31, 2014 to make their 2013 participant fee disclosures.  Assuming the disclosures are made on January 31, 2014, then going forward the next disclosures are due 12 months from that date.

This relief provides for a one time extension and may only be used once by plan sponsors.  Plan sponsors may only elect to use the extension if a plan administrator reasonably determines delay will benefit participants (for example, reducing plan administrative costs or by providing the information at a time more relevant to participant).  If a plan sponsor has already made the 2013 participant fee disclosures they may take advantage of the extension with their 2014 disclosures.  The FAB should allow plan sponsors to reduce costs by aligning the timing of fee disclosures with other required annual disclosures that typically occur around the beginning of a plan year.  This will prevent duplicative mailing costs and enable participants to consider the disclosures at the same time they receive other important plan disclosures.

The FAB also helps reduce the impact of deadline creep.  Interpreted literally, the regulations state that the participant fee disclosures are due by the anniversary of the previous disclosure.  So if a plan sponsor provides the fee disclosures earlier than the latest possible deadline, then over time the deadline will become earlier and earlier.  The DOL has announced they are considering changing the regulations to allow a 30-45 day disclosure window to prevent this from occurring and has requested public comments.

It is important to note that FAB 2013-02 does not extend the deadline of the required 408(b)(2) covered service provider fee disclosures to plan sponsors or any other required plan disclosures.

The Supreme Court of the United States, in its decision handed down on June 26, 2013, found the Defense of Marriage Act, which was enacted in 1996, violates the U.S. Constitution.  The decision will have wide-ranging implications for individuals and employers, and we will begin to see some of these immediately.

Same sex married couples must now be afforded the same treatment under federal law as any married couple, at least in states that recognize their marriages.  Retirement plans governed by ERISA, a federal statute, must now recognize legally married same sex couples for all purposes in plan administration, including spousal consent for distributions, loans and beneficiary designations, where required, death benefits, QDROs, annuity payment options, spousal rollovers and death benefits.  Additionally, legally married spouses will be eligible to participate in a myriad of welfare benefit plans, including health insurance plans, with no adverse federal tax consequences.

We expect to see government agencies issue guidance on many of the changes resulting from this ruling over the next several months.  All employers should be sure to consider, in consultation with their benefits counsel and other employee benefits advisors, the impact that the death of DOMA has on their plan administration, and be sure that they are taking all necessary steps to follow the law.