Retirement Spotlight

Retirement Spotlight: Making Sense of the New Auditing Standard for ERISA Plans

On July 10, 2019, the American Institute of Certified Public Accountants (AICPA) issued formal guidance for those who audit financial statements that are included with Form 5500, Annual Return/Report of Employee Benefit Plan, filings. The AICPA first proposed this guidance in April 2017, following a request by the Department of Labor (DOL) to improve the quality of employee benefit plan audits. This guidance, released in a new Statement on Auditing Standards No. 136 (SAS 136), will apply to audits for reporting periods ending on or after December 15, 2020.


What is AICPA’s Role with ERISA Plans?

Founded over 130 years ago, the AICPA is the world’s largest member association representing accounting professionals. Many view the AICPA as an important source of guidance for the accounting profession. Aside from developing audit standards, the AICPA provides educational materials, creates and evaluates CPA exams, and ensures that technical and ethical standards are maintained. The AICPA has also established an Employee Benefit Plan Audit Quality Center to help CPAs meet the various challenges of performing plan audits.


When is an ERISA Plan Audit Required?

Before detailing the AICPA guidance, a quick review of the plan audit requirements may help. Plan sponsors whose plans are not subject to the Employee Retirement Income Security Act (ERISA) do not need to provide audit results to the DOL. This group includes most church plans and owner-only plans. In addition, smaller plans that meet certain waiver requirements are not subject to the Form 5500 audit requirements. But an employee benefit plan is subject to an independent audit if the plan

  • had 100 or more eligible participants as of the first day of the plan year and did not file as a small plan filer for Form 5500 reporting in the prior year, or
  • filed as a small plan filer for Form 5500 reporting in prior years but now has 121 or more eligible participants as of the first day of the current plan year.

An “eligible participant” is an employee who is eligible to participate in the plan (even if not deferring), or has terminated employment but still has a plan balance.


Limited Scope Audit vs. Full Scope Audit

Because SAS 136 does not change ERISA, plan sponsors can still elect to have a limited scope audit (now known as the ERISA Section 103(a)(3)(C) audit) if the qualified institution holding the assets provides a certified statement confirming the accuracy and completeness of the plan’s investment information. (A “qualified institution” is a financial organization that holds plan assets and is regulated and subject to periodic examination by a state or federal agency.)

During a limited scope audit, the auditor is not required to test the accuracy or completeness of the investment information, nor does the auditor need to assess the control risk related to assets held by the certifying institution. But the auditor does need to provide required financial statement disclosures and review and test controls on plan operations related to the plan’s noninvestment information—such as participant data, contributions, and benefit payments.

Auditors must conduct a full scope audit if the institution does not provide a certified statement on the plan’s investment information, or on any investments not included in the certification. During a full scope audit, the auditor must review and test both the plan’s investment and noninvestment information.


What’s “New” About the New Auditing Standard?

SAS 136 clarifies and formalizes current best practices that auditors working with employee benefit plans should already be familiar with. It also provides detailed requirements unique to employee benefit plans, which will help auditors meet their obligations. Some of the most significant provisions found in SAS 136 are described below.

  • SAS 136 replaces a modified opinion (typically a disclaimer) used with ERISA Section 103(a)(3)(C) audits with a two-pronged opinion. The opinion should indicate whether the
    • information in the financial statements not covered by certification is presented fairly, and
    • investment information contained in the financial statements reconciles with, or is derived from, the information contained in the certification.
  • The auditor must obtain plan sponsor acknowledgements that the sponsor is responsible for
    • determining whether a 103(a)(3)(C) audit is permissible and whether the certification meets ERISA requirements,
    • maintaining and providing a current plan document,
    • preparing and fairly presenting financial statements, and
    • providing a substantially completed (draft) Form 5500.
  • The auditor must read the current plan document and consider relevant plan provisions when designing and performing audit procedures.
  • The auditor must identify which investment information is certified.
  • SAS 136 requires the auditor to follow detailed requirements for providing written communication to the plan sponsor about the results of the audit.
  • SAS 136 reformats and changes certain content requirements within the auditor’s report.


Why Did the AICPA Create a Formal Auditing Standard?

The DOL grew concerned about the quality of ERISA plan audits after it conducted an assessment of Form 5500 filings and related audit reports for the 2011 filing year. The purpose of the DOL’s assessment was to determine whether the quality of ERISA plan audits had improved since the DOL last reviewed Form 5500 filings in 2004. The DOL found that ERISA plan audits had not improved since 2004. In fact, the audits had grown worse.

During the assessment, the DOL reviewed a sample of 400 plan audits from a pool of 81,162 Form 5500 filings. The DOL found that 39% of audits contained major deficiencies with respect to one or more generally accepted auditing requirements. These deficiencies could lead to the rejection of the Form 5500 filing and put $653 billion in assets for over 22 million plan participants at risk. (In 2004, 33% of audits contained major deficiencies.) Examples of major deficiencies included no documentation of an internal control environment, failure to test timely remittance of employee contributions, inadequate work determining eligibility and calculation of benefit payments, and no testing of participant investment options.

The DOL also reviewed the number of limited scope audits that were performed. In 2004, 59% of the 400 audits reviewed were limited scope audits. In 2011, that number increased to 81%. The DOL believes that the increased number of limited scope audits has contributed to the increased number of deficiencies found in audits.


How Should Plan Sponsors Prepare?

Although the SAS 136 provisions won’t take effect until 2021, plan sponsors should discuss the effect of these changes with their CPAs. While the new SAS 136 primarily affects audit practices, plan sponsors that have not taken an active role in past plan audits can anticipate more involvement under this newly formalized standard.

Ascensus will continue to monitor any developments regarding this guidance. Visit for future updates.

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Retirement Spotlight: IRS Provides Welcome Relief From High VCP Fees

The retirement industry received a gift on April 19, 2019: Revenue Procedure (Rev. Proc.) 2019-19. This revenue procedure updates the Employee Plans Compliance Resolution System (EPCRS) by expanding the availability of self-correction options for more kinds of plan failures. The IRS anticipates that this expanded guidance will increase plan compliance and reduce some costs for employers.


A Step in the Right Direction

Expanding the options available through the IRS’s Self-Correction Program (SCP) will benefit employers that face increased fees if they correct plan failures under the Voluntary Correction Program (VCP). Under the VCP, an employer submits an application for correction to the IRS, and—if approved—has assurance that the failure will not result in greater sanctions or plan disqualification.

In January 2018, the IRS announced a new VCP fee structure based on plan assets, rather than on the number of plan participants. This fee structure eliminated several exceptions—including amendment or loan failures—that used to carry a fixed or reduced general fee. As a result, many employers face significantly higher fees to correct operational failures under the VCP. But the IRS also allows more employers to fix plan failures through self-correction, perhaps as a result of the vigorous criticism about higher fees.


New Plan Failures Available for Self-Correction

The SCP process requires that employers follow specific IRS correction steps. If properly completed and documented, the SCP gives employers assurance of plan compliance. But with the SCP, the IRS neither reviews the employer’s actions nor issues a “compliance statement,” which documents the IRS’s approval.  Rev. Proc. 2019-19 expands self-correction in three primary areas: plan document failures, operational failures, and loan failures.


Plan Document Failures
The revised procedure allows employers to self-correct many plan document failures—other than the initial failure to adopt a qualified plan or 403(b) plan document timely—as long as the plan has a favorable letter at the time of correction. The EPCRS generally considers plan document failures as “significant” failures. So to qualify for self-correction, an employer needs to correct the failure by the end of the second plan year following the year the failure occurred.


Operational Failures
The EPCRS now allows employers to retroactively amend their plans when they have failed to follow the terms of their plan documents. Through this process, an employer can conform the terms of the plan document to the way the employer actually ran the plan. Employers can retroactively amend these operational failures if they meet the following three conditions.

  • The plan amendment would result in an increase of a benefit, right, or feature.
  • The increase in the benefit, right, or feature applies to all eligible employees.
  • The increase in the benefit, right, or feature is permitted under the Internal Revenue Code and satisfies the EPCRS general correction principles.

As with plan document failures, employers must amend their plans for significant operational failures by the end of the second plan year following the year that the failure occurred.


Loan Failures
Employers may now self-correct a defaulted loan by 1) requiring the participant to make a corrective payment, 2) re-amortizing the outstanding balance of the loan, or 3) dictating some combination of these two options. Previously, employers could use these options only when filing through the VCP. The revised revenue procedure also allows an employer to

  • report a deemed loan distribution on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., in the year of the SCP correction (instead of for the year in which the failure occurred);
  • obtain after-the-fact spousal consent if the employer failed to obtain spousal consent at the time of the plan loan; and
  • retroactively amend the plan for exceeding the number of outstanding loans specified in the document.

Although the EPCRS has greatly expanded the availability of self-correction for loan failures, some restrictions do apply. According to Rev. Proc. 2019-19, the Department of Labor (DOL) will provide a no-action letter only to those employers who correct loan default failures through the VCP. Employers concerned about receiving the DOL’s no-action letter may wish to spend the additional time and money required to correct the failure under the VCP.

Another restriction applies to failures arising from loans that violate the statutory loan provisions. This includes loans that exceed the maximum loan limit, loans that exceed the maximum repayment period, and loans that were not subject to level amortization. These types of loan failures do not qualify for self-correction.


More Guidance to Come?

While Rev. Proc. 2019-19 provides employers with additional self-correction options, more clarification is needed. The IRS has indicated that it may provide additional examples of insignificant operational failures in the Correcting Plan Errors section of its website. Ascensus will continue to monitor the IRS’s website for new guidance. Watch News for any significant developments that may emerge.


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Retirement Spotlight: Congressional Hearings a Harbinger of Pension Reform?

We witnessed several important hearings in Congress during the first week of February. The two that drew our attention revealed what could be a healthy, bipartisan push for retirement plan reform—and this bodes well for those trying to close the retirement savings gap.

The hearings, which were held in both the Senate and the House, focused on Social Security solvency and on the importance of making retirement plans easier for private employers to adopt and maintain. Specific examples of private-sector employers having success with their own workplace plans were also provided. Both hearings included testimony from independent organizations (such as the Pew Charitable Trusts and the American Enterprise Institute), and the House hearing featured a small business owner who touted the merits of the OregonSaves automatic-IRA program for his employees.

Rather than detailing the contents of the hours-long hearings, this article outlines several key retirement plan proposals that seem to surface repeatedly. It also allows readers to make their own assessments on the proposals’ merits. But one thing this article does not try to do: predict whether any particular item will or will not become law. Ascensus has been in the retirement industry long enough to understand the foibles of retirement plan reform and simplification—and to know that that the legislative process is unpredictable.


Continued Bipartisan Support

Despite the frequent—and sometimes bitter—disagreements that seem to permeate lawmaking on Capitol Hill, there is widespread bipartisan support for pension reform. This was evident from the witness testimony and from the senators’ and representatives’ comments and questions during the hearings. While there remains disagreement about the depth of the retirement savings crisis and about the best remedies, both Democrats and Republicans substantially agree on many matters.


Issues Putting Retirement Funding at Risk

Here are some of the findings in the hearings. Many of these issues have been discussed for years and so may sound quite familiar.

  • One-third to one-half of U.S. workers have no access to a workplace retirement plan.
  • Those who do have access often don’t participate—or save much less than they need to.
  • Saving for retirement and other personal needs is difficult for a number of reasons—including low wage growth, high household debt, and the rising costs of out-of-pocket medical care.
  • Increased life expectancy, especially for women, will require more Social Security resources and additional personal savings in order to avoid financial hardship in retirement.
  • Defined contribution (DC) plans have largely replaced defined benefit (DB) plans over the past 40 years. Many DB plans—especially multiemployer (union) plans—are significantly underfunded, and DC plans shift much of the retirement savings burden from employers to employees.
  • Small business owners (in particular) face barriers to establishing retirement plans, such as high start-up costs, lack of administrative capacity, and overall unfamiliarity with complex plan rules.


Possible Solutions

To address these concerns, a handful of retirement plan provisions consistently appear in legislative proposals. Here are some of the most common ones—ones that seem to enjoy broad support.

  • Automatic enrollment into employer-sponsored plans – This key provision recognizes the natural tendency for employees to stick with whatever default feature is part of the plan. If a plan “defaults” eligible employees at a certain deferral percentage (5 percent is common), they tend to accept that contribution rate. Of course, employees could always opt out or choose a different deferral percentage.
  • Automatic escalation of deferrals each year – As with the auto-enrollment feature, automatic escalation involves a default, in this case, a default deferral percentage increase each year. This increase would usually occur in increments of 1 percent every year until a participant’s overall deferral percentage reached 10 percent. Again, employees could choose another deferral rate or opt out.
  • Tax credits for new plans and small employers – Many retirement plan proposals contain provisions that could make adopting a new plan less expensive. The details differ, but for a certain number of years an employer’s start-up costs (ranging from $500 – $5,000) could be credited back, and smaller businesses could get a credit for maintaining a plan.
  • Open multiple employer plans (MEPs) – Open MEPs allow many employers to join a single qualified retirement plan (e.g., a 401(k) plan). The MEP concept isn’t new, but currently employers must have some common connection—such as belonging to the same trade—before they can join other employers in adopting a single plan. This is known as a “closed MEP.” Open MEPs (or pooled employer plans (PEPs)) would permit completely unrelated employers to adopt a plan with other employers. This approach could prove helpful for smaller employers, who would possibly enjoy both lower costs and lower liability.

While a wide array of provisions may find their way into legislative proposals, the ones just mentioned arise consistently. And in both the House and Senate hearings, these themes came up repeatedly. From employers to legislators to expert witnesses, most seemed to agree that some form of these provisions would boost savings rates and help Americans’ retirement readiness. So we can reasonably expect at least some of these provisions to appear in any broad-based retirement plan legislation.


More Proposed Bills in the Works

As soon as the government shutdown ended and Congress was back in session, retirement plan bills were introduced. In fact, during the House hearing, two congressmen—Rep. Ron Kind (D-WI) and Mike Kelly (R-PA)—reintroduced the Retirement Enhancement and Savings Act of 2019 (RESA 2019), which seems to have broad bipartisan support. (See our Washington Pulse article for more details on RESA 2019.) The Family Savings Act of 2019 (Rep. Mike Kelly) and the SIMPLE Modernization Act (Sen. Susan Collins (R-Maine) and Sen. Mark Warner (D-VA)) were also reintroduced. Other bills are in the pipeline, and congressional leaders appear poised to release them soon, based on their comments in the hearings.

It is tricky business predicting whether particular bills will make it through the difficult legislative process and gain the President’s signature. Many members of Congress will offer their best solutions to the widely acknowledged retirement savings gap. And they know that starting to fix a system that is so critically important to the nation’s long-term financial security can be both fiscally sound and politically popular. Based on those criteria alone some retirement plan reform seems—can we say it—likely.

Ascensus will continue to encourage federal legislators to take bold action to address America’s retirement savings shortfall. We will also try to nudge them toward comprehensive retirement plan simplification. Watch News for any significant developments that may emerge.

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Retirement Spotlight: Court Rules No Bankruptcy Exemption for Certain Retirement Plan Assets Acquired in Divorce

The U.S. Bankruptcy Appellate Panel for the 8th Circuit has ruled in Lerbakken v. Sieloff and Associates that bankruptcy creditors may access certain retirement plan assets obtained through a divorce. Normally, individuals who file for bankruptcy protection may keep all of their qualified retirement plan assets—and up to around $1.3 million in IRA assets. But the 8th Circuit has ruled that retirement assets received in a divorce—including those obtained through a qualified domestic relations order (QDRO)—may not always enjoy these special protections. This surprising decision reminds us that all recipients of these types of assets should carefully consider the best way to treat them—before bankruptcy is even on the radar.


Earlier Supreme Court Ruling Considered

In 2014, the Supreme Court ruled in Clark v. Rameker that a nonspouse’s inherited (or beneficiary) IRA did not receive special protection, called a “bankruptcy exemption,” because it was not considered a retirement fund within the meaning of the bankruptcy statute. The Court took into account several factors that are unique to inherited IRAs.

  • IRA beneficiaries cannot contribute to inherited IRAs.
  • Beneficiaries must take annual distributions, potentially years before retirement.
  • Distributions are never subject to an early distribution penalty tax.

The Court found that these factors demonstrated that inherited IRAs are not intended to provide for retirement. The Court reasoned that, because the bankruptcy statute provides an exemption for retirement assets, and because inherited IRAs are not intended for retirement, they are not covered by the exemption.


The 8th Circuit Court Ruling

In Lerbakken v. Sieloff and Associates, the individual filing for bankruptcy (Brian Lerbakken, the “debtor”) received a divorce decree and domestic relations order granting him both a portion of his former wife’s 401(k) plan assets and the entire value of her IRA. The court stated that he never attempted to qualify the domestic relations order and that “Lerbakken has undertaken no other action to obtain title or possession of the accounts.” A few years after the divorce decree was issued, he filed his bankruptcy petition.

Relying on the Clark decision, the U.S. Bankruptcy Court for the District of Minnesota ruled in May 2018 that the retirement assets were not exempt from creditors. This ruling was appealed, and the 8th Circuit Panel affirmed the lower court. It ruled that, like inherited IRAs, assets acquired through a divorce are not primarily retirement assets, and so do not qualify for the exemption.


Why Did the Court Rule This Way?

The 8th Circuit Panel provided only limited insight into its reasoning. In its opinion, the court indicated that the bankruptcy statute requires a two-part test. For the retirement assets to be considered exempt, they must

  • be for the retirement of the debtor, and
  • they must be held in an account exempt from taxation under the Internal Revenue Code.

Retirement funds not meeting this test do not qualify for the exemption. The court ruled that Lerbakken’s assets were not for his retirement, using the Clark opinion to support its finding that “the exemption is limited to individuals who create and contribute funds into the retirement account.” The court also found that the debtor’s interest in the assets in question was nothing more than a property settlement, and thus not subject to special protection.

The Supreme Court reasoned that, because inherited IRAs are not intended to provide for a beneficiary’s retirement, they are not subject to the distinctive protections that retirement assets receive in bankruptcy. The 8th Circuit Panel may have understood that most individuals who receive retirement plan funds through a divorce treat those assets quite differently from inherited IRA assets. In practice, most of them will move those assets into an IRA or other eligible plan that they hold in their own name, thus treating them as their own retirement funds. But the debtor in this case, Mr. Lerbakken, did nothing at all with his ex-spouse’s retirement funds. He simply left them alone. And this allowed the 8th Circuit Panel to conclude that the retirement assets obtained through this divorce were functionally the same as inherited IRAs.


Who Will This Ruling Affect?

The U.S. Court of Appeals for the 8th Circuit covers Minnesota, Iowa, Missouri, Arkansas, North Dakota, South Dakota, and Nebraska. The 8th Circuit is the only one to have ruled on this issue so far, but other courts could certainly adopt this interpretation of the law if a similar case arises. If Mr. Lerbakken were to appeal the ruling, the U.S. Court of Appeals for the 8th Circuit would hear the appeal. But based on his circumstances, it seems unlikely that he will appeal.

So this Lerbakken ruling could affect individuals filing for bankruptcy protection anywhere in the United States—if they have retirement assets that were initially obtained through a divorce. The practical importance of the ruling, however, may be minimal. The decision properly addresses the unique facts in this case, but it does not address how a bankruptcy filer with divorce assets may be able to shield retirement funds from creditors. If Mr. Lerbakken had contributed the divorce assets into his own retirement account through a permissible transfer or rollover, would this court have ruled differently? It seems quite possible.


Case Implications

Bankruptcy trustees are required to zealously seek all appropriate debtor assets in order to pay the creditors of the bankruptcy estate. The Lerbakken ruling may catch the eyes of these trustees, who will likely seek to challenge any future exemptions that are claimed under similar circumstances. But the Lerbakken facts are unusual. Typically, individuals who receive retirement assets from a former spouse will take some action, perhaps moving assets into their own retirement plans. But most will not simply sit on their hands, letting assets languish “unclaimed” in the former spouse’s IRA or 401(k) plan.

This case reminds us that this ruling could have been avoided entirely. Had Mr. Lerbakken been advised of the importance of carefully considering the merits of moving his ex-spouse’s retirement funds into his own account, these assets might have been protected. Keep in mind that there may be good reasons not to treat all retirement assets obtained in a divorce as one’s own. For example, the recipient may need to take some assets directly from the former spouse’s 401(k) plan in order to avoid the 10% early distribution penalty. Your clients can make the best decisions in each circumstance only by fully understanding the consequences of their actions. So even if this case has created some uncomfortable ripples in the industry, it may contain some valuable lessons to share.

Ascensus will monitor progress on similar cases and will release ongoing analysis of this issue. Visit for the latest developments.


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Retirement Spotlight: IRS Moves to Mandatory Electronic Submission for Retirement Plan VCP Corrections

Employers whose retirement plans have compliance issues in need of correction through the IRS’ Voluntary Correction Program (VCP) will now have a few new and different hoops to jump through to get the IRS’ stamp of approval. The IRS has modified its VCP procedures under the Employee Plans Compliance Resolution System (EPCRS) with the release of Revenue Procedure 2018-52. It requires that submissions and VCP fee payments be made electronically on the website starting April 1, 2019.


Submitting and Paying Online

Corrections through the new procedure may be applied for beginning January 1, 2019.

  • Transition period: From January 1, 2019, through March 31, 2019, the IRS will accept either electronic submissions through or traditional paper submissions. Paper submissions that are postmarked on or after April 1, 2019, will not be accepted.
  • Starting April 1st: All VCP submissions made on or after this date must be made through

These payment rules also apply to plans assessed sanctions through the IRS’ Audit Closing Agreement Program (Audit CAP). Plans that correct failures using the Self-Correction Program (SCP) are not required to submit to the IRS or pay a fee.


A 15MB file size restriction is imposed on submissions. Submissions typically fall in the 5MB to 10MB range, but information for a submission that is above the 15MB threshold must be faxed to the IRS. Thus, a submission that is above the size restriction may need to be broken into two parts—one 15MB file sent to and the rest of the information above 15MB faxed to the IRS.


Other EPCRS Changes

Although the major change lies in how VCP corrections are submitted, Revenue Procedure 2018-52 also contains several other noteworthy updates to the IRS’ EPCRS.

  • The reference to the IRS Letter Forwarding Program as an option for locating participants and beneficiaries is removed. (Though, that service under the program was technically discontinued years ago.)
  • If the IRS deems a VCP submission deficient or determines that issuing a compliance statement approving the correction is inappropriate, it can refuse to issue a compliance statement and may close the correction case, possibly without issuing a refund for the VCP fee. The previous IRS approach was to work with plans that made incomplete submissions in order to gather the required information so that the submission could be approved.
  • A new Penalty of Perjury statement that includes a plan sponsor signature must be included with submissions. This information previously was included on Form 8950, Application for Voluntary Correction Program (VCP) under the Employee Plans Compliance Resolution System (EPCRS).
  • Form 5265, which is an acknowledgement letter for Form 8950 submissions, will no longer be filed with the submission.
  • Corrective amendments detailed in the revenue procedure now also apply to pre-approved 403(b) plans.


More to Come

Several outstanding questions remain as 2019 approaches. Details at are scarce at this time. For example, the revenue procedure does not state what plans should do if the submission is rejected—whether a second submission and fee would be required.


It is clear, however, that effective April 1, 2019, the VCP will become almost exclusively digital. The website is active as it is used for other payment purposes as well, but as of this writing, the retirement plan correction information was not yet available. Watch Industry & Regulatory News as additional guidance becomes available.


Retirement Spotlight: How Employers Can Help Employees Pay Off Student Loans and Save for Retirement

$1.3 trillion…that’s how much student loan debt Americans had incurred by the end of June 2017. During that same time period, the Pew Research Center estimates that 37 percent of adults ages 18 – 29 had outstanding student loans[1].

As these statistics show, paying for college doesn’t just end at graduation; it can go on for years. Getting younger employees to save for retirement is already challenging. And for those facing crippling student loan debt, it may be impossible. In response to this growing financial crisis, some employers have found a way to help employees pay off their student loan debt and save for retirement.

New Solution Found in IRS Guidance

On August 17, 2018, the IRS released private letter ruling (PLR) 201833012, which allows a proposed employer 401(k) plan feature to be associated with employees’ student loan payments.

Under the proposed 401(k) plan feature, if an employee affirmatively elects to participate in the employer’s student loan benefit program and makes a student loan payment equal to at least two percent of her compensation during a pay period, the employer will make a nonelective contribution (also known as a “profit sharing contribution”) of five percent of that pay period’s compensation to the employee’s 401(k) plan account.

Some in the media have mistakenly referred to this proposed nonelective contribution as a “matching contribution”.  Although the PLR’s proposed contribution formula would be identical to the 401(k) plan’s current matching contribution formula (i.e., all eligible employees who defer at least two percent earn a matching contribution of five percent), a matching contribution is defined as an employer contribution made on behalf of an employee who makes a 401(k) plan deferral contribution. Under the PLR, the proposed contribution would be made only if an employee made a student loan payment—not a 401(k) plan deferral contribution.

The Best of Both Worlds

The PLR clarifies that an employee who participates in the student loan benefit program could simultaneously defer her salary into the 401(k) plan, and—if deferring at least two percent—earn the 401(k) plan’s five percent matching contribution during those pay periods when she chooses not to make a student loan payment.

Example: Jane Smith, age 28, earns $36,000 per year and gets paid $1,384.62 every two weeks. Jane also owes $47,000 on her student loan and is enrolled in her employer’s student loan benefit program. On September 7, 2018, Jane makes a $27.69 student loan payment (2% of $1,384.62). She also makes a 2% salary deferral ($27.69) to her 401(k) plan account. Jane’s employer will make a $69.23 nonelective contribution to her 401(k) plan account for the student loan payment, but will not make a matching contribution for the salary deferral. On September 21, 2018, Jane does not make a student loan payment, but does make another 2% salary deferral to her 401(k) plan account. Therefore, Jane’s employer will make a 5% matching contribution (based on her salary deferral) to her 401(k) plan account.

Clarification on Open Questions

The PLR states that the proposed nonelective contribution is subject to plan qualification rules including—but not limited to—eligibility and contribution rules as well as coverage and nondiscrimination testing. The PLR also mentions that because receipt of the nonelective contribution is contingent upon the student loan payment and not upon an employee deferring (or not deferring) into the employer’s 401(k) plan, there is no conflict with the contingent benefit rules. (See Internal Revenue Code Section 401(k)(4)(A).)

Next Steps – How Can Other Employers Make Similar Contributions?

The student loan benefit program described in the PLR is just one way employers may design their retirement plan to simultaneously encourage repayment of student loans and help employees save for retirement. Employers who are interested in implementing a student loan benefit program similar to that described in the PLR should consider visiting with their attorney to determine whether to proceed because a PLR may be relied upon only by the party to whom it is issued.

If a decision to amend the plan to incorporate such a program is made, the employer should consult its plan record keeper or third-party administrator to discuss available options. The easiest path for an employer with access to pre-approved plan documents is to have a customized volume submitter document prepared on its behalf. If an employer is flexible in how its program is designed, there may be other options (e.g. new comparability allocation formulas) that will allow the employer to satisfy its objective.

[1]Anthony Cilluffo, “5 Facts About Student Loans”, Pew Research Center, August 24, 2017, accessed August 23, 2018,

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Retirement Spotlight: How Tax Reform Changed IRA Recharacterizations

The recent tax reform bill made a few changes to IRAs and retirement plans. You may have heard rumblings about one of them involving IRA recharacterizations. The change, which took effect January 1, 2018, reduces the scenarios in which IRA owners may choose to recharacterize a contribution. To help you understand and prepare for this change, let’s take a closer look at both the old and new recharacterization rules.

Old Recharacterization Rules

The recharacterization rules generally allowed you to “undo” certain transactions. You could recharacterize a contribution for any reason as long as it was completed by your tax return due date, plus extensions.

Before January 1, 2018, you could recharacterize a

  1. regular Traditional IRA contribution to a Roth IRA,
  2. regular Roth IRA contribution to a Traditional IRA,
  3. conversion of Traditional or SIMPLE IRA assets back to the original type of IRA, and
  4. retirement plan-to-Roth IRA rollover to a Traditional IRA.

New Recharacterization Rules

Under the new rules, your list of recharacterization options has been trimmed from four to two.

As of January 1, 2018, scenarios 3 and 4 (shown above) do not apply. You may no longer recharacterize a Roth IRA conversion, from any source. It is now a one-way transaction without an “undo” feature.

Options 1 and 2 remain unchanged. You can continue to recharacterize a regular current year IRA contribution by your tax return due date, plus extensions.

The new rules are clear about conversions and retirement plan-to-Roth IRA rollovers that occur in 2018—they cannot be recharacterized. But whether conversions and retirement plan rollovers completed in 2017 can be recharacterized in 2018 is unanswered in the new rules. Ascensus contacted an IRS representative who said that IRS was aware of this issue and that conversions and retirement plan rollovers completed in 2017 may be recharacterized in 2018.

Going Forward

If you are considering a conversion or retirement plan-to-Roth IRA rollover, you’ll want to carefully consider the new recharacterization restrictions. If you completed a conversion or retirement plan-to-Roth IRA rollover in 2017 and wish to recharacterize it in 2018, note that the IRS’ comments were provided in an unofficial, verbal conversation. As a result, you should consider talking to your tax or financial professional beforehand.

Retirement Spotlight: 2017 Hurricane Disaster Relief Guidance for Employers with Retirement Plans

The Internal Revenue Service (IRS), Department of Labor (DOL), and Pension Benefit Guaranty Corporation (PBGC), have extended many tax-related deadlines for hurricane victims in the wake of Hurricanes Harvey, Irma, and Maria. Congress then passed the Disaster Tax Relief and Airport and Airway Extension Act of 2017 to provide additional relief. What this means to you, your plan, and your participants will vary, so you’ll want to be aware of a few key takeaways.


Qualified Hurricane Distributions

The legislation passed by Congress permits a special distribution type: “qualified hurricane distribution.” Individuals whose principal residence is within a presidentially declared disaster area affected by Hurricane Harvey, Irma, or Maria—and who have sustained an economic loss as a result—are eligible to request qualified hurricane distributions from their IRA or employer-sponsored retirement plan (plan permitting).

Qualified hurricane distributions are distributions taken during a specified time period, described below.

HurricaneRelief AreaDistribution taken afterDistribution taken before
IrmaFlorida, Georgia, U.S. Virgin Islands, and Puerto Rico9/4/20171/1/2019
MariaU.S. Virgin Islands, Puerto Rico, and Seminole Tribe of Florida9/16/20171/1/2019

Your plan is not required to allow qualified hurricane distributions. If you decide that your plan will allow qualified hurricane distributions, however, you should consult with your plan document provider to determine what action you must take. If you need to amend your plan document to allow qualified hurricane distributions, you must amend by the last day of the 2019 plan year.


Qualified Hurricane Distribution Relief Granted to Individuals

Designating a withdrawal request as a qualified hurricane distribution allows the individual to

  • withdraw amounts up to $100,000, aggregated across all IRAs and employer plans;
  • avoid mandatory 20 percent withholding on distributions from qualified plans, 403(b) plans, and governmental 457(b) plans;
  • pay taxes on the distribution ratably (equally) over three years, beginning in the tax year of the distribution, or elect to pay all taxes in current year;
  • avoid the 10 percent early distribution penalty tax;
  • repay the qualified hurricane distribution (as a rollover) into any eligible retirement vehicle within a three-year window starting on the day after the distribution is received; and
  • repay hardship distributions for the purchase or construction of a principal residence taken after August 23, 2017, if the purchase was cancelled due to hurricane events. Repayment must be completed by February 28, 2018, and can be made to any eligible retirement plan.


Hardship Distribution Relief

If you decide not to permit qualified hurricane distributions in your plan, you may still allow for other relief. Broader relief applies to individuals who live in, or have a business within, a presidentially declared disaster area. For instance, participants can now use disaster relief as a safe harbor hardship reason.

  • Even if your plan does not currently offer hardship distributions, you can permit hardship distributions for disaster relief immediately—if you amend your plan by the end of the 2018 plan year to allow for these distributions.
  • You do not need supporting documentation (e.g., spousal consent) before approving a hardship distribution, as long as you reasonably believe that you can obtain it. Then you must collect it as soon as practicable.
  • No six-month suspension of deferral contributions applies to disaster relief hardships.


Loan Relief Provided

For your plan participants who live in, or have a business within, one of the declared disaster areas, certain features of permissible loan programs have been relaxed.

  • Even if your plan does not currently offer loans, you can permit loans to provide disaster relief immediately and then amend your plan to allow for loans by the end of your 2018 plan year.
  • As with hardships, you can process loans without obtaining all of the supporting documentation first. But you must collect this information as soon as practicable.
  • The maximum loan amount for disaster-relief loans is raised to $100,000 (from $50,000), and participants can take loans in excess of 50 percent of their vested balance.
  • The borrower can delay loan repayments for one year, and does not need to include this period in the payment schedule. For example, a five-year loan repayment schedule could begin after the initial one-year delay.


Tax Deadline Extensions Granted

If you or your plan participants live in (or have a business within) one of the disaster areas, they may be eligible for extensions on deadlines that fall on or after the dates listed below. Click through the relief area name to see the full list of affected counties from

Hurricane  Relief Area Tax deadline
on or after
Deadline is
extended to
Harvey Texas   8/23/2017   1/31/2018
Irma Florida and Seminole Tribe of Florida   9/4/2017   1/31/2018
Irma U.S. Virgin Islands and Puerto Rico   9/5/2017   1/31/2018
Irma Georgia   9/7/2017   1/31/2018
Maria U.S. Virgin Islands   9/16/2017   1/31/2018
Maria Puerto Rico   9/17/2017   1/31/2018

Employer-Sponsored Retirement Plan Deadlines Extended

  • Employer contributions
  • Employer tax deduction
  • Employee contribution deposit timing (deferrals and loan payments), but must be deposited as soon as practicable
  • Form 5500 filing (IRS and DOL)
  • Loan repayments
  • Required beginning date and required minimum distributions
  • Removal of excess deferrals
  • Removal of ADP excess (no employer penalty applies)
  • Removal of ACP excess (no employer penalty applies)
  • Beneficiary disclaimer timing
  • End of 60-day rollover window
  • Blackout notices not given timely
  • Beneficiary disclaimer timing
  • IRS Employee Plan Compliance Resolution System two-year period for self-correcting significant failures


Additional PBGC Deadlines Extended for Defined Benefit Plans

  • Payment of PBGC insurance premiums
  • Filing termination notices
  • Completing the distribution of plan assets
  • Filing Form 501, Form 601, and reportable events notices
  • Filing of actuarial information for plans with funding waivers, missed contributions, or underfunding

IRA, HSA, and ESA Deadlines Extended

  • Regular contributions
  • Tax deduction
  • Recharacterizations
  • Forms 1099 and 5498 delivery
  • Required beginning date and required minimum distributions
  • 60-day rollover
  • SIMPLE IRA deposit timing, but must be deposited as soon as practicable
  • Timely removal of excess (with NIA)
  • Beneficiary disclaimer timing


Next Steps

The hurricane relief outlined above should help you and your affected participants in the wake of these recent disasters. But it is up to you whether you take full advantage of the available relief. Plans are not required to operate under the more generous hurricane provisions. But if your plan does, you should thoroughly document any changes to your plan in accordance with the existing rules and the requirements laid out in the relief itself.

Check back at for updates on this and all retirement-related topics.

                                                   What is the right distribution type to use?


Distribution –
Distributions –
normal reasons
Distribution allowed if you live within
the disaster area and if you suffered an economic loss
            X          X  
Distribution allowed if your relative or lineal descendant lives within the
disaster area
Distribution allowed if your business
was within the disaster area
The limit on how much you can take for this distribution reason      $100,000 amounts eligible
for hardship
amounts eligible
for hardship
Distribution permitted without a regular (e.g., age 59½, hardship, normal retirement age) distribution trigger             X    
Distribution is considered eligible for rollover             X    
Distribution can be paid back into the plan or another plan             X Only if used to purchase a residence in the disaster area from 2/28/2017
to 9/21/2017
Only if used to purchase a residence in the disaster area from 2/28/2017
to 9/21/2017
Six-month deferral suspension applies                     X
Taxation on the distribution can be spread over three years instead of just in year of distribution             X    
Distribution subject to 10 percent early distribution penalty tax             X                X
Deadline for taking hurricane-related distributions        1/1/2019          1/31/2018              N/A


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