At various times of the year, the IRS announces benefit plan limits for the following year. It’s important to understand these limits – and make sure your benefit-eligible employees do, too – in order to maximize what your company and employees get out of the benefit plans you invest in and offer.

Benefit plans are a great way to enhance your company’s employee value proposition and support your attraction, recruitment, and retention efforts. To maximize the investment you and your employees make in benefit plans, it’s important to provide clear and frequent communication explaining how benefits work and what employees can do to get the most from them. This is especially true when a communication can help an employee gain tax advantages and avoid losing money – this is where plan limits come in.

For example, earlier this year the IRS announced 2023 health care flexible spending account (FSA) limits are increasing to $3,050 (from $2,850 this year). That’s good news, as it helps employees put aside more tax-free money to pay for eligible out-of-pocket health care expenses, while reducing their taxable income – both of which will no doubt be welcomed given inflation and the current economic environment.

There are three caveats:

1. Employees need to know about changes to limits and what it could mean to them.
2. Employees need to know how to change their benefit elections to take advantage of new limits.
3. Employees need to know what happens if they don’t use health care FSA funds and file claims by IRS deadlines (they lose the money). Extended grace periods for using the money in 2020 and 2021 due to federal stimulus packages are not available in 2023.

The important phrase here is “employees need to know.” If you also offer a high deductible health plan with a health savings account (HSA), things get even more complicated. Employees need to know whether an FSA or HSA is best for their situation.

See how complicated it can get? That doesn’t even get into defined benefit, defined contribution, compensation, and other IRS limits that will apply in 2023.

Since you have a business to run and may or may not have the resources who can spend the time educating your employees about all of the ins and outs of benefits, you may want to reach out to your benefits administrator for help.

RBT CPA’s affiliate — Spectrum Pension and Compensation – offers third party administration and related services (including communication) for clients in the Hudson Valley and beyond. While you won’t be competing with Fortune 100 companies for attention, you will get customized, personalized services to ensure compliance while promoting the value your plans deliver to your company and team.

Interested in learning more? Click here to see the summary of 2023 limits Spectrum shared with its clients and prospects just a few weeks ago and here to learn what Spectrum can do for your business and employees in 2023 and beyond.

Some employers had found a competitive edge in recruiting and retention by offering student loan assistance benefits. Others were considering adding them to their rewards programs. Then, Biden’s student loan relief was passed, leaving employers to ponder their next move.

As reported on BenefitsPro.com in September, 4 of 10 employers are taking another look at what to do with student loan benefits following the release of Biden’s plans. “The administration is directing the U.S. Department of Education to cancel $10,000 in federal student loan debt for borrowers earning less than $125,000 annually. Pell Grant recipients will see up to $20,000 eliminated. According to the White House, this initiative will assist up to 43 million borrowers, including eliminating the full remaining balance for roughly 20 million people.”

In an International Foundation of Employee Benefits Plans survey, almost 9% of participating employers offer a company student loan benefit and 16% are considering offering one. 11% are going to take another look at their strategy; 60% don’t plan on making any changes; and 31% don’t know what they’re going to do. Of the employers that do offer a benefit, 28% reimburse the employee directly; 21% offer refinancing; and 3% provide a match in a defined contribution account. Participating employers indicate student loan benefits help with retention and recruitment; reduces employees’ financial stress; and drives employee engagement. On the other hand, some employers have faced pushback from employees who don’t benefit.

What do employees think? As reported on BenefitNews.com, a survey conducted by Betterment at Work found almost 60% of employees felt their employer should help them pay off debt. 74% indicated they’d leave their jobs for another company offering loan repayment benefits.  Perhaps the most potent finding: 86% would stay with an employer for at least five years if they offered repayment benefits.

Employers striving to regain their footing following the Great Resignation and Great Reshuffling may want to take note, especially since the impact of Biden’s plan is limited to those who incur Federal student loan debt by June 30, 2022 and who meet certain income requirements. Even after Biden’s plan pays out benefits, 23 million will still have student loan debt (not including new debt incurred after June 30.)

According to Forbes, more than 50% of today’s students leave college with debt, the average being $28,950. 92% of loans are federal, with the balance being private. Borrowers between 25 and 34 owe about $500 billion in federal student loans; between 35 and 49 owe $620 billion; between 50 and 61 owe about $282 billion; and 2.4 million aged 62 or older owe $98 billion in student loans.

The application for student loan forgiveness under the Biden plan is scheduled to open this month. Eight million people are expected to receive automatic forgiveness; the balance need to apply, but there are some issues being worked through. Just last week, eligibility was scaled back due to legal challenges. In addition, some borrowers want to opt out of the loan forgiveness to avoid state taxes that they would not be subject to otherwise. The number of cases on the docket challenging the law is rising.

While details surrounding Biden’s plan are being settled, the clock is ticking on another benefit offered under the Coronavirus Aid, Relief and Economic Security (CARES) Act to employers. As reported by The College Investor,  “Section 2206 of the CARES Act allows a portion of employer provided student loan assistance to be excluded from income. Whether those payments are made directly to the employee or the lender, they will be tax-free. The income exclusion is up to $5,250 per year per employee.” As of now, this tax advantage is available through December 31, 2025.

For updates on Federal Student Loan Forgiveness, sign up on the U.S. Department of Education subscription webpage.

While we’re not benefit experts or lawyers, at RBT CPAs, we do know taxes, audits and accounting. If you have any questions about how the CARES Act income inclusion may impact your company, give us a call. We’ve been supporting businesses and municipalities in and around the Hudson Valley for over 50 years.

If you’ve been racing to comply with SECURE and CARES Act retirement plan amendment deadlines, take a breath! In August, the IRS issued Notice 2022-33 extending some deadlines.

As reported by the Society for Human Resource Management (SHRM), private sector 401(k) plan sponsors who took advantage of benefit changes under the Setting Every Community Up for Retirement Enhancement (SECURE) Act and the Coronavirus Aid, Relief and Economic Security (CARES) Act were previously required to make plan amendments this year. The deadline for:

• Calendar year plans were originally December 31, 2022.
• Non-calendar year plans were the last day of the first plan year beginning on or after January 1, 2022.
• Collectively bargained plans were the exception, with the deadline being the last day of the first plan year after the start of 2024.

The IRS notice issued August 3 pushed the deadline back to December 31, 2025, for both calendar year and non-calendar year plans, with a few exceptions: Under the CARES Act, the amendment deadline for loans, in-service withdrawals, and temporary suspension of loan repayments remain unchanged.

It is important to note, there are different deadlines for government plans. Government sponsors of 457 (b) plans and 403(b) plans for public school employees have until 90 days after the close of the third regular session beginning after December 31, 2023, to amend the plan (although the deadline for certain 457(b) amendments resolving compliance issues may be later).

The SECURE Act requires employers to extend eligibility for certain part-time employees starting in 2024; ease withdrawals by new parents for birth or adoption expenses; and permanently increase the start date for minimum distributions from age 70 ½ to 72. However, it’s important to note that further guidance is pending.

The CARES Act, which offered flexibility to employers during COVID, suspended minimum distribution requirements in 2020 and made it easier for new parents to make withdrawals for birth or adoption expenses. Plan loan limits were also doubled to the lesser of $100,000 or 100% of a vested account balance.

Should you need professional assistance with adopting the amendments, making the effective date retroactive, and operating plans as if the amendments are in effect, our Spectrum Pension and Compensation Inc. affiliate can help. For almost 30 years, Spectrum has been assisting employers in the Hudson Valley and beyond with employee benefits, including retirement plans, health insurance, and life insurance. The Spectrum team is available to provide technical assistance in plan design, compliance, administration, and record keeping. Click here for their contact information.

For accounting, auditing, and tax support, RBT CPAs is always here to help. Give us a call.

If you sponsor a defined benefit plan and/or defined contribution multi-employer plan, take note! There are a few updates to Form 5500 effective for 2022 plan year reporting (Source: Mercer.com; “Latest Form 5500 Updates”).

Form 5500 is used to report about a plan’s qualification, financial condition, investments, and operation. All defined benefit and defined contribution plan sponsors are required to submit a Form 5500 to the IRS and Department of Labor each year.

If you sponsor your own defined benefit plan (referred to as a single-employer defined benefit plan), actuarial information required is changing. First, any plan insured by the Pension Benefit Guaranty Corporation (PBGC) that has at least 1,000 participants must provide 50 years of projected benefits for active, terminated vested and in-pay status – this must be reported in a separate attachment to line 26. Second, plans must report if you elected the 15-year shortfall amortization relief under the American Rescue Plan of 2021.

For multi-employer defined benefit plans, there are changes to Schedule MB and certain existing requirements.

• Plans that attach reporting withdrawal liability amounts that are part of employer contributions must identify which amounts are periodic and which are lump sum payments.
• For interest rates, plans must report the rate used for employer withdrawal liability assessment or attach a description of the interest rate assumption.
• PBGC-covered plans with at least 500 participants will need to project benefits for a 50-year period for active, terminated vested and in-pay participants; they will also have to provide a 10-year projection of employer contributions and withdrawal liability payments.
• PBGC-covered plans with at least 1,000 active participants must provide average accrued monthly benefits in an age/service scatter.
• In Retirement Plan Information Schedule R, plans must include the 10 participating employers contributing the highest amounts.

For both single and multi-employer plans, reporting can be in the form of a spreadsheet for 50-year expected benefit payment projects and age/service scatter of active participants. The same applies to withdrawal liability amounts and projected employer contributions and withdrawal liability (Schedule MB only).

When it comes to defined contribution multi-employer plans (MEPs), including pooled employer plans (PEPs), there are a couple of changes to Form 5500 and Form 5500-SF instructions, including new plan characteristic codes to identify the type of DC MEP and clarification about who to name as plan sponsor and administrator.

The changes apply to filings for plan years starting January 1, 2022 or later. 2022 plan year filings are generally due seven months after the end of the plan year. So, the 2022 filing must occur by July 31, 2023 for plans that run on a calendar year. (You can file for a 2 ½ month extension with Form 5558.)

Additional changes are expected in the future. For now, if you have any questions or need assistance gathering information for your Form 5500 or Form 5500-SF, let us know. Click here to get in touch with RBT CPAs.

Note: Form 5500 changes are governed by final rules issued by the Internal Revenue Service, Employee Benefits Security Administration, and the Pension Benefit Guaranty Corporation. If there are any conflicts between the information in this article and the official final rules, the official final rules govern.

Of the many responsibilities Employee Retirement and Income Security Act (ERISA) plan sponsors, fiduciaries, and recordkeepers must uphold, one of the most challenging relates to cybersecurity to protect plan assets and plan participants’ information. The US Department of Labor (DOL) upped the ante associated with cybersecurity last year when it issued first-of-a-kind new guidance in April and, within several weeks, started auditing for compliance.

With cyber threats and attacks on the rise, in April of 2021 the DOL issued a three-part guidance package (Cybersecurity Program Best Practices; Tips For Hiring a Service Provider; and Online Security Tips) and specified plan fiduciaries are obligated to mitigate cybersecurity risks within their own operations, vendors’ operations and prospective vendors’.  To reinforce this guidance, the DOL began requesting information and documents to audit compliance.

According to the Employee Benefits Security Administration, as of 2018, there were an estimated 34 million defined benefit plan participants in private plans and 106 million plan participants in defined contribution plans with estimated American retirement assets exceeding $9 trillion. That’s an attractive target for cyber criminals and threats. The American Society of Pension Professionals and Actuaries indicates that while the April 2022 guidance was the first related to cybersecurity, it complements regulations on electronic records and disclosures to plan participants and beneficiaries about protecting personally identifiable information.

The DOL wasted no time reinforcing cybersecurity is one of its top priories. Within two months of issuing the guidance, it began requesting documents and information about plan cybersecurity policies and practices as part of retirement plan audits.

According to the Society for Human Resource Management (SHRM), the DOL asks for “all documents relating to any cybersecurity or information security programs that apply to the data of the Plan, whether those programs are applied by the sponsor of the Plan or by any service provider of the Plan.” This may include policies, procedures, and guidelines for access controls and identity management; processes for business continuity, disaster recovery and incident response; third-party providers’ management; cybersecurity training; data encryption; documents and communications about past incidents; service providers’ documents and communications regarding cybersecurity capabilities and procedures and how plan data is used, and more.

Bloomberg Tax created a cybersecurity audit checklist for plan fiduciaries based on the DOL guidance, and an action plan to promote compliance. It suggests fiduciaries should get informed about cybersecurity governance; get expert support when needed; identify data flow and storage; and assess fiduciary conduct to date.

Going forward, many sources indicate that while the immediate focus is on retirement plan assets and participants, fiduciaries and plan sponsors may want to prepare to uphold the same guidance for their health and welfare plans.

If you’re unsure about anything related to compliance with the guidance or audits, it’s always a good idea to consult your benefits legal counsel. For assistance with benefit plan accounting, taxes, and audits, you can trust RBT CPAs – a leading provider in the Hudson Valley for over 55 years.

Effective December 15, 2021, new standards apply to audits of financial statements for employee benefit plans subject to the Employee Retirement Income Security Act (ERISA). While this primarily expands what’s required of an auditor, plan sponsors have some new responsibilities as well.

Employee retirement and health plans are legally required to undergo an audit – by a qualified accountant – at a plan’s year end to help protect plan participants. The auditor inspects financial accounts and issues a report on the plan. The audit helps hold those managing and controlling a plan accountable in their fiduciary responsibilities. After a United States Department of Labor assessment showed these audits had major deficiencies, new standards were issued.

The new standards apply to “limited-scope audits,” which are now called Statement on Auditing Standards (SAS) No. 136 ERISA Section 103(a)(3)(C) audits. Under the new standards, an employee benefit plan’s annual reporting obligations are expanded. Along with Form 5500, the auditor’s report must include an opinion on financial statements, schedules, and accounting principles and practices.

To start, a plan sponsor must provide a letter confirming eligibility for a Section 103(a)(3)(c) audit and acknowledge responsibility for plan administration (including maintaining the plan document and amendments; ensuring plan transactions are consistent with plan provisions; and maintaining accurate records to determine participants’ plan benefits). The letter must state the audit is permissible; investment information was prepared by a certified bank, insurance carrier or similar institution; and the certified investment information meets the new requirements, and is appropriately measured, presented, and disclosed.

In addition, the plan sponsor must provide a substantially complete draft Form 5500 – with forms and schedules that may affect the audit — to the auditor before he/she can move ahead with the engagement.

In turn, the auditor will evaluate the plan and use a new format to report findings. The report provides more transparency by requiring more details about the auditor’s opinion and basis for that opinion, as well as financial statements and the audit of those statements. The audit must include reportable findings that include noncompliance or suspected noncompliance with applicable laws and regulations; findings relevant to those who oversee financial reporting and governance; and/or an indication of deficiencies in internal controls warranting attention. Any reportable finding must be communicated in writing to those responsible for governance so it can be addressed in a timely manner.

While they require a bit more work, the new standards are a positive for plan participants and sponsors by promoting transparency and compliance, while uncovering potential issues when they are easier to rectify.

To ensure compliance, plan sponsors should start the process earlier than usual, so they can be sure to select a qualified, experienced auditor (like RBT CPAs), and have the time to gather and complete required paperwork and forms.

Your RBT CPAs partner is ready to walk you through the new process and conduct an audit to ensure compliance with the new standards. Give us a call so we can help you get started today.

SOURCES: SHRM, RSMUS, Employee Benefit Plan Audit Quality Center (EBPAQC), Plansponsor.com