Plan sponsors and employee benefit plan auditors both had to adjust quickly to the COVID-19 pandemic during 2020 to complete audits on-time while working from home. There is less uncertainty in 2021 on the impact of the pandemic compared to a year ago, but there were several significant changes to the retirement industry in 2020 that will need to be addressed in audits for the first time. These are a few of the most impactful changes that may appear during 2021 employee benefit plan audits:
1. CARES Act – Distributions and Loans
The Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded the criteria that allow plan participants to access their retirement savings during the COVID-19 pandemic. Here are a few provisions of the CARES Act that will impact audit testing:
Coronavirus Distributions – Up to $100,000 was made available to “qualified individuals” who had their health or employment income impacted by the pandemic. Participants receiving these distributions can contribute these funds back to the retirement plan as a “rollover” contribution to restore their retirement savings and avoid paying income taxes over a three-year period. Plan sponsors should be cognizant of whether their service providers monitored plan participants’ eligibility for these distributions or if the plan sponsor was responsible, and how the plan is tracking these rollover contributions to ensure the CARES Act rules were met.
Required Minimum Distributions – These were eliminated for 2020 and could be re-contributed to the plan in certain circumstances if already made in 2020. If your plan made Required Minimum Distributions during 2020, plan sponsors should be aware of how participants were made aware of this change during 2020 to ensure all eligible re-contributions were completed and recorded properly.
Loan Limits and Repayment Schedules – Plan sponsors had the option to allow “qualified individuals” to receive larger loan amounts from their retirement plan accounts (lesser of 100% of account balance or $100,000) until Sept. 22, 2020, as well as allowing participants to defer payments that were due to be made between March 27, 2020 and Dec. 31, 2020. Plan sponsors will need to ensure these temporary relief provisions were implemented when monitoring loans for delinquencies, as plan auditors will be closely examining these provisions during audit testing.
2. Workforce Reductions – Partial Plan Terminations and Safe Harbor Notices
Unemployment rates soared during the pandemic due to mandatory shutdowns of non-essential businesses. Changes to employee headcounts may have two different types of ramifications for your employee benefit plan.
Partial Plan Termination Reprieve –Plan sponsors that had to lay off or furlough over 20% of their workforce could have caused a “partial plan termination” causing impacted participants to become immediately vested. COVID-19 relief legislation that was passed at the end of 2020 contained a one-time change that a partial plan termination will not be applicable to plans that on March 31, 2021 cover at least 80% of its active participant count on March 13, 2020. Plans that experienced such workforce reductions in 2020 should evaluate whether they could take advantage of the reprieve and document that evaluation in their records.
Safe Harbor Notices – Plan sponsors that make safe harbor contributions to their retirement plan are normally required to notify employees at least 30 days prior to modifying employer contribution calculations. The IRS issued Notice 2020-52 that allowed reductions or suspensions in certain safe harbor employer contributions without such notice between March 13, 2020 and Aug. 31, 2020. This notice made reporting easier for plan sponsors, and may satisfy auditors’ requests for documentation related to changes in safe harbor employer contributions.
3. Timing of Contribution Remittances
Generally, plan sponsors are required to remit amounts withheld from employees’ compensation as contributions as soon as reasonably possible. In a Disaster Relief Notice published by the Department of Labor, the DOL indicated it will not take enforcement action with respect to temporary delays in remitting contributions to retirement plans solely due to the pandemic. If your plan experienced temporary delays, it should document the reason for the delay in plan records.
For More Information
For assistance or questions related to how these factors impact your employee benefit plan audits in 2021, or if you have questions on any other retirement plan issues, please contact us.
Published on June 01, 2021