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Things to Consider for Your 2021 Audit

Published by Kim Moore on Nov 5, 2020 6:00:00 AM

The 2020 Plan year has provided many challenges for Plan Sponsors and their 401(k) plans. At Summit CPA Group, we anticipate the 2021 Plan Year will bring different challenges, and we wanted to give you some things to think about as you plan for the upcoming year.

The CARES Act was enacted to provide relief to plan participants in the form of increased distributions and loans, the suspension of loan payments and the removal of the obligation for plan providers to require minimum distributions for participants over a certain age. However, these changes were not mandatory and individual plans need to elect the changes to allow them. What should plans expect for a required Plan audit if they elected to allow these changes?

  • First, if you decided to allow some or all of these changes, you need a plan amendment. While the IRS will allow until December 31, 2022 to complete the amendment, your auditor will need to understand the actions you have taken in these areas and your plans in terms of the required plan amendment. If you have not completed the process of amending the plan and have a Board of Directors or Investment Committee, documentation in the minutes from these meetings of these entities will be sufficient. If you woman_using_smartphone_18934 (1)have amended the plan, make sure that you have a copy of the signed amendment for your auditor and let them know right away that you completed the amendment.

  • If the plan allows the coronavirus related distributions, employees are allowed to self-certify that they meet the qualifications for the distributions. If your record-keeper does not allow for this self-certification as part of the distribution process, obtain a certification from the employee as your auditor will want to see that this certification occurred. Make sure you maintain all documentation related to distribution or loan changes related to the CARES Act in the employee HR file or in the 401(k) plan file.

We also expect many plans may experience a Partial Plan Termination (PPT) during 2020, and many others will need to evaluate their status to determine if the condition impacts their plan. A PPT occurs when 20% of the plan participants have had an employer-initiated severance from employment during the plan year. If this occurs, all impacted participants become 100% vested in all contributions, regardless of the amount of service time. If employees were furloughed, but were rehired before the end of the year, they will not be considered as having an employer-initiated severance from employment for this determination. Make sure you have documentation to support your determination if a PPT has or has not occurred. For more information about PPTs, see Revenue Ruling 2007-43 on the IRS website.  

You may have suspended your company match or employer discretionary contribution during 2020 due to the impact of the pandemic. If the contributions as described in your plan document are discretionary, as long as you notified the participants of this change, there should not be implications to the plan. Make sure that you maintain documentation, however, related to this change.

If your plan has a Safe Harbor match, however, suspending these contributions may have implications to the plan qualification status, and/or to the year-end discrimination testing exemption. We recommend reviewing this situation with your service provider if it applies to your plan so there are no surprises during the year-end plan work.

Lastly, we have been informed that many plan service providers/record-keepers have had a loss of staff during 2020 either due to furloughs/layoffs or experienced turnover due to mandatory pay reductions. We recommend you begin all year-end work in 2021 related to the 2020 plan year as early as possible to avoid any delays meeting required timing for compliance related activities such as discrimination testing, preparation of year-end reporting, filing of the Form 5500 and completion of the annual audit, among other tasks. We believe early preparation in all the above areas will be critical in 2021 to ensure your plan remains on track for compliance.

As the plan sponsor, when it’s time to audit your plan, it’s vital that you hire an experienced auditor to ensure your plan is in compliance. At Summit CPA, we specialize in retirement plan audits. We have the ability to offer assistance entirely off-site with little or no distraction to your daily office routine.  We also offer flat-fee pricing so there are no surprises on your bill when the job is complete. For assistance contact our office at (866) 497-9761 to schedule an appointment.

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