Compliance Newsletter October 2022
- Guidance Issued Related to Independence of Plan Auditors
The EBSA issued guidance to help determine when a qualified public accountant is truly independent for the purposes of auditing and providing an opinion on financial statements. - Amendment Deadlines Extended
The IRS extended the deadlines to amend retirement plans to adopt provisions within the CARES Act and Taxpayer Certainty and Disaster Tax Relief Act of 2020. - Disaster Relief for Arizona, Mississippi, Puerto Rico, Alaska, and Florida
The IRS and PBGC extended certain deadlines for taxpayers in several states and US territories.
Guidance Issued Related to Independence of Plan Auditors
The Department of Labor’s (DOL) Employee Benefit Security Administration has issued guidance in the form of Interpretive Bulletin 2022-01 to help determine when a qualified public accountant is truly independent for the purposes of auditing and providing an opinion on financial statements that are filed with the DOL. The new guidance is intended to provide clarity as well as remove outdated and restrictive provisions.
Background
Under the Employee Retirement Income Security Act of 1974 (ERISA), most plan sponsors are required to use an independent qualified public accountant on an annual basis to review the plan’s financial statements. The accountant must provide an opinion on the financial statements included in the plan sponsor’s annual Form 5500 report, which is filed with the DOL.
New Guidance
An accountant who holds publicly traded securities of the plan sponsor generally will not be deemed to have failed the independence requirement if:
- The accountant didn’t audit the plan sponsor’s financial statement for the preceding fiscal year, and
- The accountant, accounting firm, partners, shareholder employees, or financial professional employees of the accounting firm and their immediate family disposed of any publicly traded securities of the plan sponsor before the “period of professional engagement.”
The “period of professional engagement” definition creates a divestiture window during which time the accountant and others may sell any relevant securities. That window begins when a plan sponsor and accountant have a verbal agreement or understanding to perform the audit and ends at the earlier of (i) signing an initial engagement letter or other written agreement, or (ii) the audit procedures beginning.
The Interpretive Bulletin also clarifies that the term “office” for the purposes of determining who is a member of a given audit firm, is meant to be a reasonably distinct subgroup within the firm where the personnel in the subgroup generally serve the same group of clients or work on the same categories of work. Individuals do not necessarily need to work out of the same physical location to be considered working in the same office.
Amendment Deadlines Extended
The Internal Revenue Service (IRS) has extended the deadline to amend an eligible retirement plan, including an individual retirement arrangement (IRA) or annuity contract, to adopt provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act).
Background
Under the CARES and Relief Acts, among other provisions, individuals could receive favorable tax treatment for distributions under certain circumstances. For the CARES Act, qualified individuals could receive coronavirus-related distributions made from a qualified retirement plan between January 1, 2020, and December 31, 2020. Under the Relief Act, individuals could receive disaster distributions made on or after the date of the disaster, but no earlier than December 28, 2019, and before June 25, 2021. Eligible retirement plans would not be treated as failing to operate under the terms of the plan if the plan is amended within the prescribed time frame and the amendment applies retroactively to the beginning of the time period.
New Amendment Deadlines
The extended deadlines below also apply to the relief from the anti-cutback requirements of the Internal Revenue Code and ERISA that was part of the CARES Act.
Qualified plans
The deadline for qualified non-governmental plans is generally December 31, 2025. For qualified governmental plans, the deadline is 90 days after the close of the third regular legislative session of the legislative body with the authority to amend the plan that begins after December 31, 2023.
403(b) plans
The deadline for 403(b) plans that are not maintained by a public school is generally December 31, 2025. The plan amendment deadline for a section 403(b) plan that is maintained by a public school is 90 days after the close of the third regular legislative session of the legislative body with the authority to amend the plan that begins after December 31, 2023.
457(b) plans
The deadline to amend a 457(b) governmental plan is the later of (1) 90 days after the close of the third regular legislative session of the legislative body with the authority to amend the plan that begins after December 31, 2023, or (2) if applicable, the first day of the first plan year beginning more than 180 days after the date of notification by the Secretary that the plan was administered in a manner that is inconsistent with the requirements of section 457(b) of the Code.
IRAs
The deadline to amend the trust governing an IRA that is an individual retirement account or the contract issued by an insurance company with respect to an IRA that is an individual retirement annuity is December 31, 2025.
Disaster Relief for Arizona, Mississippi, Puerto Rico, Alaska, and Florida
In response to several disasters including severe storms, flooding, landslides, water crisis, and Hurricanes Fiona and Ian, occurring in Mississippi, Arizona, Puerto Rico, Alaska, and Florida, the Internal Revenue Service (IRS) has extended various deadlines for impacted businesses and taxpayers. Pension Benefit Guaranty Corporation (PBGC) also offers relief for certain deadlines according to a one-time announcement published in the federal Register on July 2, 2018.
Impacted Areas
Individuals who reside or have a business in the areas noted below, as well as relief workers affiliated with a recognized government or philanthropic organization assisting in the relief effort, may be eligible for extended deadline relief.
- Arizona: Salt River Pima-Maricopa Indian Community
- Mississippi: Hinds County
- Alaska: the Regional Education Attendance Areas of Bering Strait, Kashunamiut, Lower Kuskokwim, and Lower Yukon
- Puerto Rico: All 78 municipalities in Puerto Rico
- Florida: Anywhere in the state of Florida
Deadline Relief
| For victims located in: | Deadlines falling between: | Deadline extended to: |
|---|---|---|
| Arizona | July 17, 2022--November 15, 2023 | November 15, 2023 |
| Mississippi | August 30, 2022--February 15, 2023 | $61,000 |
| Alaska | September 15, 2022--February 15, 2023 | |
| Puerto Rico | September 17, 2022--February 15, 2023 | |
| Florida | September 23, 2022--February 15, 2023 |
Below is a partial list of retirement-impact tax filing and payment deadlines that may be included in the extension:
- Retirement plan loan repayments under Internal Revenue Code section 72(p)(2)
- Required minimum distributions under Internal Revenue Code section 401(a)(9)
- The 10% additional income tax continues to not apply even if the following is missed during the relief period:
- Substantially equal payments made over the participant’s life or joint lives of the participant and designated beneficiary
- Deadline for using a distribution from an IRA for a first-time home purchase by the close of the 120th day after the distribution is received
- Prior tax year contribution deadlines for retirement plans
- Indirect rollover distribution deadlines
- 60-day rollovers
- Rollover of qualified loan offsets
- Refunds as a result of
- Excess deferrals
- ADP/ACP non-discrimination testing
- Eligible automatic contribution arrangement (EACA) withdrawals
- Excess IRA contributions
- Deadline for recontributing qualified reservist distributions
- Form 5500 and Form 8955-SSA filing
- Form 5498 for IRAs
- PBGC premium payments
- PBGC deadlines that are based on the Form 5500 deadline
- Single Employer Plan Termination Forms 500 and 501
Additional Resources
For any questions related to IRS deadlines and other disaster-related issues, the IRS has a toll-free number at 1-866-562-5227. For PBGC disaster-related questions, call 1-800-736-2444 ext.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
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