Compliance April 6, 2017

Closed DB Plan Nondiscrimination Rules Bill Reintroduced

The bill amends the nondiscrimination rules to protect older workers in plans that have been closed or frozen.
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U.S. Senators Ben Cardin (D-Maryland) and Rob Portman (R-Ohio), both members of the Senate Finance Committee, and U.S. Representatives Pat Tiberi (R-Ohio) and Richard E. Neal (D-Massachusetts), both members of the House Ways & Means Committee, introduced updated legislation —The Retirement Security Preservation Act of 2017 (RSPA)—amending the nondiscrimination rules that apply to defined benefit (DB) plans that have been closed or frozen.

The bill builds on previous legislation and Internal Revenue Service (IRS) regulations to address this issue, and was approved unanimously by the Senate Finance Committee as part of a retirement-related legislative package in September 2016.

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Over the past several years, many companies have transitioned from DB plans to other retirement plan models. When a plan is “soft closed,” existing participants or a subset of participants continue to earn benefits under the DB plan. When a plan is “hard frozen,” employees earn no new benefits under the plan.

Over time, existing employees in the closed plan typically build seniority and become more highly compensated than younger, newer employees, who are more likely to have greater job turnover. This widens the income gap between the employees in the closed plan and the new employees.

Because the grandfathered group in the closed plan generally becomes more highly compensated, closed plans almost always end up inadvertently violating the IRS nondiscrimination testing rules.

The RSPA addresses the problem by amending the nondiscrimination rules to protect older workers in plans that have been closed or frozen. The bill also contains anti-abuse rules related to closed and frozen plans.

Text of the bill may be found here.
Products April 6, 2017

Firm Uses Quarterly Review to Streamline Retirement Plan Audit Process

When issues are detected during a plan year they can also, most likely, be corrected prior to plan year end, JMM CPA says.
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The team at JMM CPA has introduced a new approach to auditing retirement plans, designed to drive efficiency and quality into the process. 

The new approach to auditing a retirement plan is to perform testing on a quarterly basis. The records needed from the plan sponsor are readily available and efficient to obtain. The data needed from the plan recordkeeper is typically available to JMM CPA online with no time or effort required of the plan sponsor.

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There are several benefits embedded in this approach for the plan sponsor.

  • Efficiency – Data needed to perform tests of transactions that occurred during the most recent quarter is readily available and fresh in the minds of the parties involved;
  • Quality – It is not unusual to discover issues or errors that need to be corrected during a plan audit. When such matters are detected during a plan year they can also, most likely, be corrected prior to plan year end; and
  • Timeliness – Fourth quarter testing can be completed shortly after plan year end. This allows plan sponsors to file the Form 5500 well before the July deadline and return their focus to the needs of their business.

JMM CPA is a member of the AICPA Employee Benefit Plan Audit Quality Center and enjoys helping plan sponsors maintain their employee benefit plans in compliance with the rules and regulations. 

For more information about this approach to auditing benefit plans, email james.moyna@jmoynacpa.com or call at 847.682.3696.

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