EMPLOYEE BENEFIT PLAN RESOURCES
Newsletter by Hawkins Ash CPAs
In this edition
November 2018

401(k) Plan Contributions for Student Loan Repayments: Potential Future Standard Practice?

Selecting 3(21) Versus 3(38) Third Party Fiduciary Advisors

Hawkins Ash CPAs Exhibit Expertise in Employee Benefit Plan Audits with AICPA Advanced Certificate

The Employer Plans Compliance Resolution Program (EPCRS) 
401(k) Plan Contributions for Student Loan Repayments:  Potential Future Standard Practice?
It is a well-known fact that the amount of student loan debt for individuals entering the workforce is at an all-time high. This has left employers asking themselves the question, “What can we do to ease the burden for our incoming new hires?” One potential solution that has been brought into the spotlight is making 401(k) contributions to participants who repay their student loans instead of contributing to a retirement plan.

Recent Developments – IRS Private Letter Ruling 201833012
Private Letter Ruling (PLR) 201833012 issued by the IRS on August 18, 2018 has driven these recent discussions focused on a plan sponsor using Student Loan Repayment (SLR) contributions as a way to encourage employees with a large amount of student loan debt to pay off this debt while still being able to save for retirement.

The following are some of the characteristics of the specific plan that was ruled on in the PLR:
  • The plan provides a flat 5% match for any participant who contributes at least 2% of compensation.
  • The plan provides a similar 5% SLR contribution for any participant who makes student loan payments of at least 2%.
  • Participants cannot receive both the match and the SLR contribution if they contribute into the plan and make payments on their student loans.
  • SLR contributions are not considered matching contributions for the purpose of annual testing (Actual Contribution Percentage Test).
  • The plan will not extend any student loans to employees that are eligible for the program.

It is important to remember that a PLR is only applicable to the specific company that applied for it. The IRS did rule in this situation that the plan could create an amendment to provide SLR non-elective contributions without violating the “contingent benefit” prohibition of section 401(k)(4)(A) and section 1.401(k)-1(e)(6). If this becomes an official ruling and standard practice in the future, there are both advantages and disadvantages to plans, plan sponsors/employers, and employees.

Advantages
Some of the advantages that could result from setting up this plan option are:
  • The PLR contributions would not be taxable to the employee and also would be deductible by the employer. Currently, direct loan assistance provided by employers is considered taxable income to the employees.
  • Companies willing to offer this type of plan option could be attractive employers for the new workforce that is increasingly burdened by student loan debt at graduation. This could provide the companies with a larger pool of talent to select from in filling open positions.

Disadvantages
Although this plan option may be very attractive to perspective employees, there are a number of disadvantages that would need to be considered if these SLR contributions would be implemented in plans. Implementation and administration of these contributions could be very costly to plan sponsors.
  • Plans would have to be formally amended to include the provisions for the SLR contribution program.
  • The Plan would have to be monitored to ensure that the loan repayments were occurring at the correct percentages per the plan document.
  • Plan sponsors would be required to obtain proof of loan repayments from the loan providers and keep documentation on file in case of an audit.
  • Plan sponsors would need to find a way to enroll and track anyone eligible for the program along with keeping records on those that decline it. It’s important to keep documentation that it was indeed offered to all eligible participants.
  • Since the SLR contributions would be subject to separate nondiscrimination testing, not ACP testing, it could be necessary to limit the program to non-highly compensated employees. Also, if employees choose not to contribute to the 401(k) plan because they are making their student loan payments, this could have a negative effect on year-end compliance testing for the plan.

Final Thoughts
This article has just scratched the surface of the logistics of implementing SLR contributions in a 401(k) plan, and there is no official IRS guidance stating this would be in compliance with ERISA rules. For now, stay tuned. In the meantime, there are other ways to try and assist employees with student loan repayment. Taxable student loan repayment benefits, qualified educational assistance programs, and working condition fringe benefits are some methods being used by employers to compensate employees and to try and ease some of their financial burdens.
Contact: Rachel Burrow, CPA
Direct: 608.793.3114
Email: rburrow@hawkinsashcpas.com
Selecting 3(21) Versus 3(38) Third Party Fiduciary Advisors
When managing a retirement plan, just the thought of it scares many of us. Being able to confidently offer the right investment mix to your employees is key. However, many Plan administrators feel they lack expertise in investing to provide and monitor an investment mix that matches the needs of each participant. By enlisting the services of a 3(21) or 3(38) fiduciary advisor, you can alleviate some of this stress and offer a variety of investment mixes to your Plan participants that match their needs.

Differences Between 3(21) and 3(38) Advisors
A 3(21) fiduciary advisor is an advisor, or group of advisors, who offer their advice and analysis on funds and investment mixes for retirement plans. 3(21) investment fiduciary advisors do not assume any fiduciary risk nor do they have the discretion to make any decisions on the investments. The risk and decision making remains at the discretion of the Plan sponsor.

A 3(38) fiduciary advisor is an advisor, or group of advisors, who are responsible for selecting, managing, monitoring, and benchmarking the investment offerings of the Plan. A 3(38) advisor’s duties can vary depending on how they are defined by the Plan document and related agreements. Those responsibilities for participant directed plans can include the following:
  • Create and manage an Investment Policy Statement
  • Form an Investment Committee
  • Hold investment committee meetings
  • Prudently select Plan investment options
  • Report on investments regularly
  • Benchmark investments
  • Replace funds and update models as needed 
Keep in mind that both 3(21) and 3(38) advisors have a fiduciary responsibility to always keep the best interests of the Plan in mind. Deciding which type of advisor to hire depends on the needs of the Plan sponsor.

Selecting Between 3(21) and 3(38) Advisors
One of the advantages to choosing a 3(21) advisor is that the Plan sponsor remains in control of the investments and funds of the Plan. As stated earlier, a 3(21) advisor can offer advice, but the Plan sponsor has the ultimate decision on how to proceed. Another benefit of a 3(21) advisor is that fees are often less than a 3(38) advisor due to the Plan sponsor assuming the fiduciary risk. If however, the Plan sponsor feels they lack the knowledge or expertise, they may want to limit their risk and responsibility by hiring a 3(38) advisor.

A 3(38) advisor assumes the fiduciary responsibility for the investments and funds of the Plan. Selecting a 3(38) advisor mitigates some, but not all, of the fiduciary risk. The Plan sponsor has the responsibility to monitor the advisor. As far as investments, a 3(38) advisor has the discretion to make decisions regarding the investments and funds in the Plan and act upon them. One disadvantage to selecting a 3(38) advisor is that the costs of the premiums are generally higher due to the amount of additional risk the advisor is assuming. 

When deciding on what type of advisor to go with, the answer is a matter of preference. The Plan sponsor needs to examine the expertise, experience, costs, etc. when deciding what type of advisor to hire. The size of the retirement plan, the cost benefit ratio, and the level of fiduciary risk the Plan sponsor is comfortable with all play a part in the decision-making process. 
Contact: Marcus Klemm
Direct: 715.748.1352
Email: mklemm@hawkinsashcpas.com
Hawkins Ash CPAs Exhibit Expertise in Employee Benefit Plan Audits with AICPA Advanced Certificate
Hawkins Ash CPAs, a regional full-service public accounting firm, is pleased to announce that Erica Knerzer, CPA, Charles Wendlandt, CPA, Randall Miller, CPA, Abe Leis, CPA, and Randy Juedes, CPA, have earned the American Institute of Certified Public Accountants’ (AICPA) Advanced Defined Contribution Plans Audit Certificate.
 
The certificate program was designed to show certificate awardees’ high level of competency and commitment to performing high-quality audits. Developed by leading experts and members of AICPA’s Employee Benefit Plans Audit Quality Center, the competency-based examination for certification tests one’s ability to plan, perform and evaluate employee benefit plan audits in accordance with the latest AICPA standards and Department of Labor and IRS requirements. The certificate acknowledges their achievement by declaring their dedication to quality and distinguishes their knowledge and expertise in this area.
The Employer Plans Compliance Resolution Program (EPCRS) 
The Employer Plans Compliance Resolution Program (EPCRS) is the IRS’s correction program for retirement plans. This program is a voluntary correction program that can be used for errors that occurred within two years.  

The IRS has announced that effective April 1, 2019, Voluntary Correction Program (VCP) submissions, including payment of “user fees,” must be made electronically through the  www.pay.gov website, per Revenue Procedure 2018-52. For plan sponsors, or their authorized representatives, this will be mandatory starting April 1, 2019 and the IRS will reject hard copy VCP submissions postmarked on or after that date.

The basic process for new submission procedures are:

A.) Create an account at  www.pay.gov.
B.) Using  www.pay.gov, complete Form 8950, Application for Voluntary Correction Program (VCP).  
C.) Assemble into a single PDF file, not exceeding 15 MB, the following:
  1. Plan Sponsor’s signed Penalty of Perjury Statement (this used to be part of IRS Form 8950 but now will be a separate statement).
  2. Form 2848 - Power of Attorney or Form 8821 - Tax Information Authorization. If using an authorized representative, you must check line 5a for “Other acts authorized” on Form 2848 and include as a description “signing and filing of the Form 8950 and accompanying documents as part of a VCP submission.”
  3. Form 14568 - Model VCP Compliance Statement and any/all applicable Schedules to the form (Forms 14568-A through 14568-I), and required enclosures (alternatively, a cover letter and separate written narrative could be used).
  4. Sample earnings calculations and earnings computations.
  5. Relevant plan document language or full plan document when applicable (e.g., non-amended failures).
  6. Copy of opinion, advisory, or determination letter, if applicable, pertaining to the plan document.
  7. Any other required information, such as the statement required for the 403(b) plans recuperation of all investment providers.
D.) Upload the PDF file to  www.pay.gov. If information supporting the submission exceeds the size limit, follow special fax instructions set forth in Section 11.03(7) of the Revenue Procedure.

E.) Use  www.pay.gov to pay the user fee, as set forth in Appendix A of Revenue Procedure 2018-4 (and successor Revenue Procedures issued at the beginning of each year). The user fees are now based on plan assets rather than the number of plan participants.

F.) Keep the “Payment Confirmation – Application for Voluntary Correction Program” that is generated on successful filing through pay.gov; the Tracking ID on this receipt serves as the IRS control number for your submission and is official acknowledgement of the submission. If no confirmation is generated, call (877) 829-5500 for assistance.

If additional operational errors are discovered after submitting your VCP materials, but before the submission has been assigned to an IRS representative, you are directed to call the VCP Status Inquiry Line at (626) 927-2011 (not toll-free) for further information.

Although it is currently customary for the IRS to contact the filer once a submission is assigned to an IRS representative, this may not happen going forward. In the Revenue Procedure, the IRS reserves the right to process submissions and issue compliance statements without any prior contact with the filer. If the IRS starts their process before you are able to contact them, you will likely have to pay a new user fee and address the later-discovered errors under a new VCP submission.
Contact: Jeff Uhlir
Direct: 920.684.2550
Email: juhlir@hawkinsashcpas.com
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