Quite often, we are provided with information about updates and regulatory changes for retirement plans. These updates are geared to benefit current and future retirement plan participants by improving accessibility for future financial security of individuals, increasing transparency of retirement plan reporting, and ensuring there is proper oversight of the maintenance and operations of retirement plans. With this comes the responsibility of ensuring your retirement plan is up to date and compliant with regulatory changes and ensuring your employees are properly set up on a path for financial security when it comes time for retirement. Some of the new things you should be aware of are:
New Auditing Standards in effect:
- We covered Statement on Auditing Standards (“SAS”) 136 Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA in our volume 3 newsletter (Read it here), but it’s worth bringing up again because of the significant changes to employee benefit plan audits that are occurring in 2022 for 2021 plan year ends and beyond. Some key highlights to SAS 136 include:
- The type of audit name has change from a limited scope audit to an ERISA Section 103(a)(3)(c) audit;
- There are significant changes to the independent auditor’s report. Prior to the new standard, a disclaimer opinion (where no opinion was issued by your auditors) was the standard opinion provided by your auditor in a limited-scope audit, now this standard requires the auditor’s report to include two opinions based on the audit and procedures performed relating to non-certified and certified investment information:
- The first opinion is whether the amounts and disclosures in the financial statements not covered by the certification are presented fairly, in all material respects, and
- The second opinion is based on whether the certified investment information in the financial statements agrees to or is derived from, in all material respects, the information prepared and certified by an institution.
- Management is responsible for the acceptance of the ERISA Section 103(a)(3)(c) audit and proper certification of the investments.
- A substantially completed draft of the 5500 must be completed prior to dating the auditors’ report.
Key Audit Matters:
- Key Audit Matters are a new reporting option that came into effect for retirement plan years ending on or after December 15, 2021. Key audit matters are required to be reported on by your independent auditor, if engaged to report on key audit matters, in the auditor’s report and to communicate to those charged with governance (i.e. plan management and, if applicable, its governing body). As previously mentioned, this is not a requirement but an option by plan management to add this reporting to the audit engagement.
- The determination of a key audit matter is at the judgement of your auditor. These matters could include consideration of accounts that are at a high risk of material misstatement, risk of plan noncompliance, any significant and unusual transactions such as plan mergers, spin offs, or plan terminations, or accounts that are subject to estimation.
Secure Act 2.0:
- The Setting Every Community Up for Retirement Enhancement Act 2.0 Securing a Strong Retirement Act was approved by the U.S. House of Representatives in March 2022. It’s now with the Senate for review.
- The SECURE Act 2.0 provides more accessibility for individuals to save for retirement. Some of the provisions include auto-enrollment, tax credits for small business to adopt a retirement plan, increase in catch-up contributions, and increase required minimum distribution age.
- SECURE Act 2.0 was covered in more detail in our volume 4 newsletter (Read it here).
Cycle 3 plan restatement ends July 31, 2022:
- The IRS deadline for a defined contribution plan, specifically for 401(k), profit sharing, and money purchase plans to restate its plan document, in accordance with the IRS cycle 3 restatement is July 31, 2022. The restatement period for pre-approved defined contribution plans opened on August 1, 2020 and will close on July 31, 2022. The restatement period occurs every six years for plan documents to be updated with statutory and regulatory changes.
- With each cycle restatement, the IRS will provide a new opinion letter on the pre-approved plan document, which states that the plan document is a qualified plan under the Internal Revenue Code.
- The restatement comes with several documents for plan sponsors to maintain, including an updated plan document and adoption agreement, IRS opinion letter, trust/custodial agreement, and an updated summary plan description.
- We continue to monitor other issues impacting qualified retirement plans:
- There has been an increase in cyberattacks on plans. Plan sponsors and employees with access to plan information need to continue to remain vigilant to protect plan assets from attack.
- Lawsuits by employees against plan sponsors continue to rise as employees do not believe their employees have done an effective job selecting and monitoring investment options, educating staff, and minimizing plan costs. It is important for plan sponsors to develop committees or identify responsible parties to monitor plan compliance and effectiveness.
I hope this information is helpful as you navigate through 2022. Please reach out to us if you have any questions.
Tania Quigley, CPA
Tania Quigley has been a member of Cerini & Associates’ audit and consulting practice area since 2005 where she focuses on serving the firms nonprofit and employee benefit plan clientele. Tania has experience in performing financial statement audits and reviews, tax return preparation, cost report preparation and filing, retirement plan audits, and other consulting. Tania brings her expertise, diversified background, and helpful approach to all of her engagements.