Employee Benefit Plan Roundup: SECURE 2.0, Department of Labor Audit Quality Study, New Auditing Standards and Audit Requirement Change
May 08, 2024
by Allisyn Keyser Byrne, CPA
401k plans, 403b plans and other employee benefit options are a great way to enhance or improve existing employee benefits, particularly in an economy in which it is difficult to compete exclusively from a wage perspective. Many employers are finding that their benefits strategy is crucial to continued success and buy-in from employees overall. This article will discuss recent and relevant regulation related to employee benefit plans, as well as other pertinent things to consider when offering an employee benefit plan.
SECURE 2.0: Setting Every Community Up For Retirement Enhancement Act
Originally passed in 2019, with additional enhancements as of December 2022, these provisions are intended to enhance and protect retirement security for Americans. Some provisions are required, while some are not. Additionally, some provisions are already effective, while others take effect in future years (2024 – 2027). Key provisions include:
Beginning January 1, 2023: Required minimum distributions (RMDs) will now start at age 73, up from age 72. The age increases again in 2033, to age 75. There is now also a decreased penalty for not taking an RMD – 25% of the RMD not taken, when compared to 50% prior to 1/1/2023.
For calendar year 2023: Existing laws allow for up to $7,500 in catch-up contributions to be made if a person is aged 50 or older. Under the new legislation, employees between 60 and 63 can make a catch-up contribution equal to the greater of $10,000 or 150% of the standard catch-up contribution, starting in 2025. These amounts are subject to inflation adjustments annually, similar to other contribution limits. Additionally, employees who earn $145,000 or more (indexed for inflation) will be required to source their catch-up contributions as Roth contributions, as opposed to pre-tax.
For plan years beginning after December 31, 2023: Employers are now allowed to add a provision to their plan document to make matching contributions on behalf of their employees making student loan repayments. These contributions would be made in lieu of matching retirement plan contributions.
For plan years beginning after December 31, 2024: Most employers will be required to automatically enroll employees in their retirement plan at a minimum rate of 3%, but no more than 10%. Default enrollment rates increase by 1% annually after the first year, to at least 10%, but no more than 15%.
For plan years beginning after December 31, 2024: plan sponsors who employ part-time employees who work between 500 and 999 hours annually will be required to have these employees become eligible to participate in the company’s retirement plan after no more than two consecutive years. The current waiting period is three years.
Department of Labor Audit Quality Study
As of November 2023, the Office of the Chief Accountant, Employee Benefits Security Administration (EBSA), U.S. Department of Labor, completed its fourth assessment of the quality of audit work performed by independent qualified public accountants.
Overall, EBSA’s review found that a majority (70%) of the audits fully complied with professional auditing standards or had only minor deficiencies under professional standards. However, 30 percent of the audits contained major deficiencies with respect to one or more relevant generally accepted auditing standards requirements. The deficiencies were most common in areas specific to benefit plans; such as participant data, contributions received/receivable and benefit payments.
There is a clear link between the number of employee benefit plan audits a CPA or CPA firm performed and the quality of the audit work. This is to say, firms auditing 100+ plans had a lower failure rate in the study performed. Peer review and practice monitoring efforts do not help identify deficient plan audits. This is because it is possible for a firm to get a passing audit rating overall despite having deficient employee benefit plan audits.
Firms with one to two plan audits decreased from 3,684 to 1,729, now representing 40% of total firms (down from 50%in 2011). On the other hand, firms with 100+ plan audits saw a 46% increase from 2011. Plan sponsors could be selecting audits with one to two plans less frequently, or firms dabbling in this space could have divested from the service.
From an enforcement perspective, the EBSA will continue to focus on:
CPA firms with smaller employee benefit plan audit practices that audit plans with large amounts of plan assets.
Annually increasing the number of large benefit practice CPA firms that are reviewed as part of EBSA’s CPA Firm Inspection activities.
Working with state licensing boards to enhance the investigation and sanctioning process for CPAs or CPA firms that perform significantly deficient audit work.
New Auditing Standards
For plan years beginning on or after December 15, 2023, plan sponsors that are required to have an audit of their benefit plan(s) should expect to see some additional requests from their auditors. This is due to the AICPA issued statements on accounting standards (SAS) 143-145.
SAS 143 relates to the auditing of accounting estimates and related disclosures. In the context of benefit plans, the most relevant accounting estimates are related to fair value of investments.
SAS 144 relates to the use of specialists and pricing information obtained from external information sources. If a benefit plan has “complex” investments, it might be necessary to involve a valuation specialist to assist with difficult-to-value plan investments.
SAS 145, while not a significant departure from existing standards, supersedes a prior SAS. The main focus of this standard is risks arising from the use of IT, which is prevalent in benefit plans (payroll providers interfacing with custodians/trustees, etc.).
Change in Audit Requirement
There was a significant change to the Form 5500 series as part of the annual revisions process undertaken by various governing bodies. Specifically, the previous audit requirement of 100+ employees was based on the number of active and eligible employees in the plan, whether or not they actually contributed. The new methodology requires an audit only if a plan has 100+ employees/participants with a balance as of the first day of the plan year.
Allisyn Keyser Byrne, CPA, is a director of employee benefit plans at CLA (CliftonLarsonAllen). She is an ASCPA member and serves on the ASCPA’s editorial committee.