On-Demand: In Your Corner | SECURE Act & SAS 136

In July of 2019, a new auditing standard was issued and it contains the most comprehensive changes to employee benefit plan audits in many years. There are some major changes in the performance and reporting requirements. Originally, the changes were effective for the year 2020, however COVID-19 happened unfortunately and SAS 141 was issued in May of 2020, which delayed the effective date of SAS 136 by one year. It will be effective for our 2021 calendar year end audits. While early implementation is permitted, most firms including ours have chosen to not implement early.

The Department of Labor, along with the AICPA worked together on this new audit standard. The reason is they wanted to increase the transparency of the auditor's report, increase the value of communications, improve management's understanding of their responsibilities, improve auditor performance and enhance the overall quality of the audits. Not all audit firms have the specialization or the expertise in auditing employee benefit plans. And let's look at some statistics on the next slide.

According to the Department of Labor, there are approximately 84,000 plans subject to audits and nine trillion in assets are subject to audit and over 5,000 CPA firms are performing those audits. Looking at the far right side of the slide, we can see that 49,000 firms audit 52% of the plans, yet they're auditing less than a 100 plans annually. This tells a meaningful story that a majority of the firms audit only a few plans each year. And the Department of Labor has found a high rate of deficient audits in firms that only audit a few plans per year. Now at EisnerAmper, we perform approximately 450 plan audits annually and we're in that bold column you see. We are one of the 56 firms that audit 200 or more plans annually. And that covers 72% of the total plan assets that are audited. We have dedicated partners and directors who specialize in employee benefit plans. We're active members of the AICPA's Employee Benefit Plan Audit Quality Center and we've been reviewed three times by the Department of Labor and each time they found no comments, which is the equivalent of a gold star.

Let's talk about the two types of plan audits. This is pre-SAS 136, limited scope and full scope audits. The main difference is the work performed on investments. ERISA allows for plans whose investments are held by a bank, trust or insurance company to engage an independent auditor to perform a limited scope audit. If the qualified institution, that's the bank, trust or insurance company that's highly regulated, if they provide a certification of the accuracy and completeness of the plan's investments and the related investment activity, then the plan administrator can engage an independent auditor to perform a limited scope audit. This only relieves the requirement to audit the investments and the related investment activity at the plan level. Everything else is subject to audit, including the participant activity. In both limited scope audits and full scope audits, the participant activity, including contributions, distributions, earnings allocation, fund allocation and eligibility, is subject to audit.

And now that we have gotten used to the terminology, I'm going to show you in the next slide that we're going to have to get used to some new terminology and it's a real tongue twister. Under the new SAS, limited scope audit is now called, ready? ERISA Section 103(a)(3)(C) audit. I know what you're thinking, that's a lot to say. And oh my goodness, did they get rid of the limited scope audit? No, they did not. That's the good news. You can still elect a limited scope audit, however going forward, it will be called a ERISA Section 103(a)(3)(C) audit. The new terminology is going to have us stumbling over our words as the limited scope audit is so much easier to say. And what changes besides the new wording is the performance and reporting requirements we'll discuss.

Full scope audit has changed as well to ERISA audit. It's those non-ERISA Section 103(a)(3)(C) audits, but they are ERISA audits. And with the full scope audit, the investment and investment related activity is audited, fair market value is tested at year end, as well as purchases and sales during the year.

Let's get into what else is changing. Let me start by saying these changes also apply to both types of audits. What we previously called limited scope audit and full scope audits. And the five items listed on the slide are the main changes of the standard. We've got engagement acceptance, the auditor's risk assessment and response, required communications with management and those charged with governance, the auditor's performance procedures, as well as reporting. Although there are major changes in each category, there is good news. The good news for our clients is that they will not experience major changes in our audit procedures. Let me say that again, they will not experience major changes in our audit procedures.

And the reason is that most of the required audit procedures were already included as suggested in the AICPA's Audit and Accounting Guide for Employee Benefit Plans, which we at EisnerAmper had implemented already and we were following that. I won't go into details regarding the risk assessment or the performance procedures, but I will focus on what will be different for our clients, which is the engagement acceptance, communications and reporting. The result of the new standards is an expansion of the engagement letter, the management representation letter, the governance letter and the audit report. Let me explain.

In the engagement letter, the section of management's responsibilities has expanded. It's now clear that management is responsible for: maintaining a current plan instrument and amendments (it has to be executed, signed), maintaining sufficient records with participant details, administering the plan in conformity with the plan's provisions, and plan management is also responsible for providing the auditor a substantially complete draft of the Form 5500 prior to dating the auditor's report. That means we can't just get a draft Schedule H of the Form 5500, we'll need all the required schedules. And for our ERISA Section 103(a)(3)(C) audits, those limited scope audits, plan management is responsible for the investment certification, which I'll go into details in the next slide.

Management is responsible to ensure that an ERISA Section 103(a)(3)(C) audit is permitted, that the investment information is prepared and certified by a qualified institution, that the certified information is appropriately measured, presented and disclosed in accordance with the applicable financial reporting framework. If you're unfamiliar with the investment certification requirements, you may need to spend a little bit more time preparing for your plan audit this year, but don't fret, on the next slide I'll show you an example certification.

The AICPA's Employee Benefit Plan Audit Quality Center has numerous resources for plan sponsors and their auditors. The example certification here that we have is from their publication, Common Deficiencies in ERISA Section 103(a)(3)(C) Audit Certifications. And it explains to us what to look for. What to look for in a certification?  That it's prepared by a qualified institution, specifies the plan name, is attached to or included with the plan investment information being certified, it covers the entire period under audit and the institution that's certifying, is certifying both the completeness and accuracy of the investment information. And with that, there cannot be any clarifying or qualifying language such as, “it's complete and accurate, unless you tell us otherwise.” That's not acceptable. And it also has to be signed by an authorized representative of the qualified institution.

Okay. Let's take a look at the changes in reporting. The old limited scope audit wording seems ambiguous to me. It says we were engaged to audit the financial statements. Whereas the new paragraph with the heading scope and nature of a ERISA is much more clear. The new paragraph states, we have performed the audits and management has determined that it's permissible and has elected to have an audit in accordance with ERISA Section 103(a)(3)(C), that management has obtained certifications from a qualified institution and that the audits do not extend to the information certified.

The old limited scope audit wording was unclear as to what the auditor did and did not do during the audit. It was a disclaimer of opinion and said, we do not express an opinion on the financial statements. However, the procedures we did perform were not disclosed. Yes, we relied on the certification for the investments and performed limited procedures on the investments and investment related activity but the opinion was lacking the clarity surrounding the testing we performed on the rest of the financial statements and disclosures. Which include contributions, distributions, loans, and eligibility. The new ERISA Section 103(a)(3)(C) audit opinion is a two-pronged opinion and it provides for the clarity needed to understand what we did do. It states that the amounts and disclosures in the financial statements not covered by the certification are presented fairly and that the certified investment information in the financial statements agrees to or is derived from the certification.

Under the new SAS, there are additional management responsibilities, similar to what management acknowledges in the engagement letter. I'm not going to read them, but I do want to stress that the number of paragraphs increased from one paragraph to three paragraphs in this section alone. Not only will you see these additional management responsibilities in the engagement letter and the audit report, but you also will see that in the management representation letter.

In both cases, old and new, the auditor's responsibility has changed. And as auditors, we're not providing an opinion on the certified information, which is the investments and the investment related activity. And it's clear in the new standard that instead, we are reading the certification, we're comparing it to the financial statements and the related disclosures. We were doing this all along, however, the new wording makes it more clear. We always communicated with those charged with governance. The new wording makes it clear that this is one of our responsibilities as auditors. The items we communicate include the plan scope and the timing of the audit, significant audit findings and certain internal related control matters that we identify during the audit.

There's another paragraph that was merged together not shown here on the slide called, other matter supplemental schedule required by ERISA. I wanted to mention that the content is similar however, it has expanded, which is the common theme of this new auditing standard. Everything has been expanded. Overall, the independent auditor's report will double in size from two pages to about four pages. I'd like to reiterate that since the majority of the plans are limited scope audit, we primarily focused here on the changes for limited scope audits now called ERISA Section 103(a)(3)(C). However, if you have an ERISA audit, formerly called full scope audit, the standard changes are very similar, excluding all the references to the investment certification. What is new for ERISA audits is the addition of the auditor's opinion on the form and content of the supplemental schedules.

There are also certain items that are required for communication to management and those charged with governance, which we've been doing all along but what is new is the first bullet, reportable findings. We're required to communicate reportable findings in writing. I’ll give you some examples on the next slide.

Here are the different types of reportable findings, an identified instance of noncompliance or suspected noncompliance with laws or regulations, a finding arising from the audit that is in the auditor's professional judgment, significant and relevant to those charged with governance, an indication of deficiencies in internal control identified during the audit that has not been communicated to management. These are all the oopses that we find or that happen.

Some examples of reportable findings include the misapplication of plan provisions. When there's a difference between the plan document and plan operations.  For instance, the definition of compensation, let's say the plan says that there's no exclusions, it's gross compensation. However bonuses were excluded when calculating the contributions. There'd be a difference, a misapplication of plan provisions here. Also for eligibility, if employees are not enrolled into the plan in a timely manner or if a participant made an election to change their deferral percentage however, the contribution was calculated on the old deferral percentage. Some other examples of reportable findings are late remittances of participant contributions, failure to correct compliance testing failures, insufficient reviews of SOC 1 reports and not implementing those user controls that are included in the SOC 1 reports, as well as financial statement or disclosure issues.

I know that this is a lot of changes so let me briefly summarize what we learned. ERISA Section 103(a)(3)(C) audit, it replaces the limited scope wording and will have a two pronged opinion that replaces a disclaimer of opinion. The ERISA audit replaces the full scope and the auditor's report will be expanded nearly double. The good thing is that for EisnerAmper, the required audit procedures, we were already performing as included in the AICPA's Audit and Accounting Guide for Employee Benefit Plans. There will be an increase in management's responsibilities that we went over, as well as the main thing that our clients will see is the communication letters. They'll be updated. The engagement letter, management representation letter, the management letter, as well as the governance letter.

Thank you so much. If there are any questions that you have, please add them to the Q and A and I'll answer them towards the end of the webcast or in the networking session. 

Brent Lipschultz:Yeah, thank you Denise, for a great presentation on the audit procedures that have changed. Today, we're going to focus on the SECURE Act and the SECURE Act is really broken up into two parts. One part concerns plan administration and is not really talked about in the press. And the second part is for plan participants. And over my career, I've worked with executives, high net worth individual plan administrators working to educate the plan participants around the complications of some of these plans and it can get very complicated.

The SECURE Act, we really didn't hear about the SECURE Act. I think we heard more about the election issues in 2019 then we heard about the Appropriations Act, which passed in December of 2019, signed by President Trump. And the reason that we don't really hear about the SECURE Act is because it was buried in the Appropriations Bill. It was Section O of a very long  bill and it's not that many pages, but it's very convoluted in many respects. The legislation is landmark legislation impacting how individual plans for retirement and the way retirement accounts operate. I think the bottom line here is you'll find that it's very pro participant and very pro sponsor administratively because some of the provisions were simplified. It's important to consider how these new rules impact your current plan designs, any new plans that you have in effect. And quite frankly, the plan provisions, most of them went into effect in 2020 and we're in 2021 now so you all should be looking at your plans and make sure you're in compliance.

This was the SECURE Act. The question really is does this act increase retirement savings? And as I go through the provision of the act, think about that question. And I'd love to hear your opinions on this afterwords in the network breakout session. It basically changed most of the retirement plans and it was the first major related legislation enacted since the 2006 Pension Protection Act. It makes it easier for a broad range of individuals to save for retirement, which eases the burden on government entitlements, such as Social Security. Increased life expectancy of individuals today and the increasing budget deficit, really solidified the passage of this bill.

While the amount an individual needs to save for retirement is growing over the years, the average American is not saving enough. The US Bureau of Labor Statistics in 2018 reported that only 55% of the adult population participates in a workplace retirement plan. That's a really staggering number and a scary number considering what's happening with our Social Security  system. And the median 401(k) balance for people aged 65 or older is just 58,035 and this barely touches the cost of elder care in the near future. It's a pretty scary statistic we're looking at. And quite frankly, you kind of wonder how we're all going to survive other than maybe just printing money like we've done in the past under the COVID stimulus plan.

Again, the act promotes savings and investing for retirement with provisions to incentivize retirement planning for the plan participant, diversify investment options and increase access to tax advantaged savings programs. Those are really the goals of this bill and we'll see if they've accomplished those goals. The major elements of the bill includes,  the required minimum distribution age has gone from 70 and a half to 72 years of age. Why did they do that? They felt that another two years of asset accumulation, especially in today's markets would make a difference and in the longevity of one's our retirement account. Two, allowing workers to contribute to traditional IRAs after turning 70 and a half years of age. It used to be that if you're beyond 70 and a half, you couldn't contribute to an IRA, but as more and more people work past 70 and a half, believe it or not, they still have the opportunity to contribute to a traditional IRA. Now, with traditional IRA and Roths, you can still contribute after 70 and a half and convert Roth IRAs after 70 and a half.

And then the major funding aspect of his bill, which cost approximately $15.7 billion. You're going to say, "Well, how is this bill paid for?" Well, here's how it was paid for. Not to the benefit of your plan participant. Basically legislation eliminated the so-called stretch IRA by requiring a non-spouse beneficiary of an inherited IRA to withdraw and pay tax on all distributions from an inherited IRA account within 10 years. What does that mean? Essentially means that the government's going to get their money earlier than they would have because under the stretch IRA, you could leave the IRAs to non-spouse and use that non-spouse's life expectancy to make distributions. If you left it to a 10 year old child, for example, that 10 year old child could have a 60 year life expectancy or 70 years and that could be withdrawn over that period of time after the dealth of the participant, but they've eliminated that. And there's some exceptions to that, which we're not going to talk about today, but that's the subject of another presentation. It also makes it easier for 401(k) plan administrators to offer annuities or income investments.

The question here is, do your employees thinking about the major elements of this bill and the impact on their financial plan?Do your employees have a long-term financial plan up to date? we just receive an RFP from a large institution in the New York area looking for a provider of education to their employees around their plans.

Multi-employer plans, pooled employer plans. I think of this as a plan for the  PEOs where it's open to different employers of different industries and essentially these new rules reduce the barriers of creating and maintaining plans, which allows for smaller employers to obtain more favorable investment opportunities, while allowing more efficient and less expensive management services. Why? Because you're grouping a bunch of small employers together and those smaller employers when grouped together, can get the same benefits that the larger ones do in most of the categories I've just cited. It allows open multiple employer plans sponsored by pooled providers. Pooled providers by definition is a fiduciary and plan administrator under ERISA, each employer would remain responsible for the selecting and monitoring of the pooled provider. Applies to DC qualified plans or IRA arrangements only.

Does not apply to employers with common interests. That's a multi-employer plan. Encourages unrelated employers as I said, with different industry groups, different geographies to band together, to create a single retirement plan. The bad apple rule is softened. What do I mean by bad apple? I don't mean that literally. What I mean one employer does something wrong with the plan, funds it the wrong way or it blows one of the testing provisions, that employer is not going to be punished. There's a prototype sample. I don't think they've released that yet, but there will be an IRS release of that prototype plan. And then the Form 5500s for these plans must provide a list of the employers, an estimate of each of the employers' contributions during the year and the aggregate account balances. This provision is now effective for 2021.

Brent Lipschultz:And so how do we pay for this education? There's two types of tax credits, they're both applicable for organizations with a 100 employees or less. And essentially the first credit is if you have an automatic enrollment plan. If you set up a plan with an automatic enrollment, meaning participants automatically enroll, unless they elect out of it, there's a credit of up to $500 per year to employers to defray startup costs for these plans, the 401(k) plans and SIMPLE plans., This credit's available for three years. And in addition to the credit, this new credit is also allowed for those existing plans that convert to an automatic enrollment design. And again, by converting into an automatic enrollment design, you're forcing people to participate in retirement. And I think that's what the government ultimately is looking for.

And then there's an increase in the credit for small employers, it covered pension plans, profit sharing plans, stock bonus, SEPs and SIMPLE plans. And the credit subsidizes the costs connected with the establishment of the plan and its administration. You can use this credit to fund employee education. Must cover one non-highly compensated employee. And it used to be that a credit, the maximum credit was $500. And now you can get a credit up to $5,000 and it's available for three years. I did the math and for three years, if you have an automatic enrollment credit and this credit and you have a new plan, let's say for three years, the total benefit is $16,500, which more than covers the cost of f administration or educational program.

The auto-enrollment deferral rate, it moved from 10% to 15% and it does this after the participant's first deemed election year. It's still at 10%, but after that first year, it goes to 15% under the SECURE Act and it doesn't change the employer contributions. This is just for employee deferrals and it requires a plan amendment. And then there was some concern about these long-term part-time employees. And these are folks that are part-time, they really don't have opportunities for pension plan contributions. They might be able to contribute to an IRA, but that certainly won't be enough to fund their retirement. The government basically expanded those covered under retirement plans those employees who work less than 1,000 hours could be excluded, but the SECURE Act now requires employers to offer dual eligibility. Whereas they have to work at least a 1,000 hours in a year or work at least 500 hours per year in three consecutive years. For purposes of the non-discrimination and coverage rules, these folks can be excluded by election. And of course this is not applicable to collective bargained plans.

Okay. The non-elective Safe Harbor provisions are more flexible in 2020 after the law change and my esteemed colleague, Denise tells me that this elimination of the annual notice is a very big deal. And as a benefit of this. Now, it still maintains the requirement for employees to make or change an election once a year, but an amendment to this plan any time before the 30th day before the close of the plan year requires at least a 4% of compensation contribution by the employer rather than 3% for all eligible employees for that particular plan year. And so Denise tells me that this, the Safe Harbor provision is very beneficial.

All right. What other changes did the SECURE Act make? My head was spinning, when I put this presentation together I don't know how your plan administrators are dealing with ERISA, the Department of Labor and now we got the Treasury with the SECURE Act. But the definition of compensation for IRAs have now expanded to include fellowship and stipend payments for graduate school. If you know those in graduate school and they're receiving this type of income, they can now contribute to an IRA. We just talked about the maximum age for making IRA contributions is repealed. You can go on and on after age 70 and a half. And obviously you've got to start taking out retirement plan minimum required at 72. Loans by 401(k)s, I've never really seen this, but apparently there's been some plans that allow loans through credit cards or similar arrangements, the debit cards, there's so many new technology things out there today that I guess they want to feel safe that we can't do this with plans.       Penalty free withdraws permitted in both a birth or adoption of a child. And that's obviously to help defer the costs and you can withdraw up to $5,000 up to one year of the child's birth or the finalization of the adoption.   Employers can adopt a plan after the year in which it is wants to put in effect. This a big deal now because plan administrators can use hindsight in determining whether a plan should be set up for a year that has passed.

That essentially means you can use hindsight and you've got a whole year, maybe 10 months for corps. Before it was, you had to do it before the end of the year for the plan year that you were thinking about adapting. But now you can think about it after the beginning of the new year, and this provision came into effect in 2020. This is a big deal. It just gives you organizations time to plan as to whether they can afford on their own budget. And usually, it takes time after the close of the year to see what the profits are of an enterprise and this helps.

All right. I said something before about lifetime income options and this all, these provisions all have that impact. There's a restriction on like I said, inherited IRAs with non-spousal beneficiary distributions, the IRA is removing the maximum age for contributions. The first one essentially pays for this bill by having people take out retirement money quicker at death and collecting tax sooner.. On the other hand, the IRA is by removing the maximum age for contributions, they're increasing the ability to the balances in these IRAs by allowing longer contributions. And then in service distributions for defined benefit plans are harmonized similar to defined contribution plans to age 59 and a half. If you've reached 59 and a half, you have the option of taking an in service distribution.

And again, it's discouraging savings, but another it's giving the participant a lifetime ability to use that money that they've saved for retirement. Increased participants access to lifetime income options for defined contribution plans. Those are kind of monthly annuity type of options. And we'll talk about that in a few minutes. And then increase participants' awareness of how defined contribution assets convert in the lifetime income streams and then encourages plans to offer lifetime income options. If you think about when I talked about giving additional options for plan participants, what I really meant to say was they're giving more income stream options to be available for these participants.

What are the changes that the SECURE Act did to improve lifetime income options? We'll talk about each one of these. Adding lifetime income disclosure requirements to benefit statements. Basically when a participant receives a benefit statement, they're going to see what their option is to convert their balance into an income stream monthly. Adding portability of lifetime income options. What happens if the plan adopts an annuity and there's a change of provider and the company doesn't want to use that provider and they want to discontinue the lifetime income options?

This will allow the participant to move the annuity out of the plan into another plan, potentially to  an IRA. A lot of flexibility on that. And then adding fiduciary Safe Harbor for prudent selection of lifetime income providers. And this basically help the fiduciary, because in the past, a lot of them were skeptical about these annuities, these companies possibly going bankrupt and not providing the lifetime income stream that's required. Well, they've changed the Safe Harbor provision to make it more plan administrator friendly. And then of course the SECURE Act doesn't require you to offer lifetime income options or even portability for that matter.

What are the definitions of lifetime income? Lifetime income investment means plan investment options permitting participants to elect one, an option not uniformly available in other plan investment options and two, relate to a lifetime income feature through a contract or arrangement under the plan. What does it really mean? It means one of two things, one it's a guaranteed minimum level of income annually for at least the remainder of the life of the participant or joint lives of a participant and beneficiary. Or an annuity payable on behalf of an employee in equal periodic payments for life of a participant or joint lives of participants and beneficiary as well.

Today, I look at EisnerAmper's plan or any of the plans that our clients are in, we don't see this option. And some people feel comfortable having an annuity payable because of the  certainty that they're going to get a sum certain amount of money over a certain period of time as long as they or their spouses are alive. We see this obviously in defined benefit plans where upon retirement, the company gives a statement which shows what the participants entitled to receive and it depends on the election that they make. They're doing this now for defined contribution plans, which I think is a big deal.

The Act amends the benefit statement requirement to provide a lifetime income stream to participants on at least one benefit statement in a 12 month period. It's usually at the year-end or the beginning of the year. Lifetime income stream must be expressed as an amount of a monthly payment of a participant or beneficiary could expect to receive if the account balance is deployed to create monthly income. You think about what your statements are with defined benefit plans, it's the same concept. It's X number of dollars a month for your life expectancy. And that's what using the interest rate assumptions at the time, that's how it converts.

There's two types of illustrations required. One is a qualified joint survivor lifetime income stream using spouses of equal age. And then there's a single life annuity as the second option. It's based on the actual age of the participant. Again, most of these annuities are interest rate sensitive so in a low interest rate environment, that means monthly benefits are lower and we're in a lower interest rate environment. The SECURE Act mandates the DOL to issue their report. And they actually have done this. I didn't put it in the slides, but it was August of 2020 they issued an interim final rule. And really what this did was to provide assumptions for modeling so that the consumers can compare different investments. And they talk about an assumed commencement date and assumed age, assumed spousal and survival benefits, assumed interest rates, assumed mortality. And they give you an example of an illustration.

For example, in the illustration e, there was a current account balance of a $125,000 and they modeled a single life annuity. And that is 600 and they put down $645 per month for life assuming participant X's age is 67 on December 31st, 2022. And then they did a qualified joint and a 100% annuity. That's 533 per month for participant's life and 533 for the life of the spouse following participant's death. The DOL rules really give you good guidance in terms of what assumptions you have to make in terms of the modeling.

Portability of lifetime income options. Again, allows a trustee to trustee transfer of lifetime income products between plans. Could be from a qualified plan to a DSP plan to another DSP plan or a DC to an IRA. If a lifetime income investment is no longer permitted to be held, then you can distribute a lifetime income investment in the form of an annuity contract. And then this extends the same portability requirements not just to 401(k) plans, but to 403(b) and 457 plans.

Portability in practice, it's not mandatory, but probably you want to include with this lifetime income option in case there's changes of record keepers. For example, portability will continue to protect the participants. Trustee to trustee transfers of lifetime income products are permitted including transfer as I mentioned, to an IRA. And if the change record keepers discontinue lifetime income options another option is to distribute as an annuity to participant to preserve the accumulated benefit. They may just take an annuity instead of a rollover option.

Safe Harbor, this is what the Safe Harbor problem was before the adoption of the SECURE Act. It basically required the administrator to assume appropriateness of an annuity provider. And that's basically considering sufficient information to assess whether the annuity provider had the ability to pay under the annuity contract, considering costs in relation to benefits and services and concluding at the time of selection that the annuity provider's financially able to make all future payments and costs are reasonable. How many fiduciaries do you know that would want to run the risk of opining on appropriateness knowing that they run the risk that this annuity stream may not be there in the future for the participant?

But there is the Safe Harbor still remains. It's basically they must engage in an objective, thorough and analytical search for the purpose of identifying insurers from which to purchase such contracts. We recommend considering engaging professionals to assess and identify companies meeting this criteria and requiring insurer credit ratings from credit rating agencies. We can provide that type of service in a non-audited capacity. If there's an audited plan, we'll have problems with that but if we don't audit the plan, we can be of assistance. And then using a request for proposal process to obtain objective options from qualified employers or insurers makes the most sense too. You can use the RFP process.

The Safe Harbor eases the uncertainty for plan participants offering an annuity as an investment option in the DC plan. If the Safe Harbor is satisfied fiduciaries are deemed to have met ERISA's prudence standards as to the selection of an insurer of a plan's annuity option and they're not liable for losses resulting from the insurer's inability to satisfy its financial obligations. That's key. Now, what do we need to do? What do fiduciaries need to do? They must make prudent selection of lifetime income provider, but SECURE Act allows fiduciary to rely, this is important, on written representations by the insurer, as long as after receiving that written representation, the fiduciary has no notice of any change in the insurer's condition or the fiduciary has not received any information that caused them to question the representations provided by the insurer. If an insurer basically says that they can serve as a reliable fiduciary, then they see something in a newspaper questioning their ability to represent or gives their representation, then you got to question that representation. Duty to investigate, triggered on receipt of notice or information about accuracy of insurer representations. That's my point.

Insurer licensed to offer guaranteed retirement contracts. They've got to opine to that or represent that. And then anytime a selection for the preceding seven years, the insurer operated under a certificate of authority from their domiciles state which has not been revoked or suspended, filed audited financial statements in accordance with the domicile's state laws, maintained reserve satisfying all the statutory requirements in all states where the insurer transacts business and is not under an order of suspension, rehabilitation or liquidation. And if you can think outright, if you got a representation on these issues and then you'll get a bill of clean health.

There's every five years the insurer undergoes a financial exam by the domicile state insurance commissioner. Insurer must agree to notify the fiduciary of any change in circumstance after providing representation that would preclude insurer from making the same representation at the time of issuance in the contract. Safe Harbor requires periodic review, but fiduciary can fulfill this review by obtaining the same representation annually from the insurer and of course, taking action in change of circumstance.

The golden ticket here is if the plan satisfies all of these requirements of the new statutory Safe Harbor, then the fiduciary is not liable for losses resulting from insurer's inability to pay under the contract for lifetime income. This provision alone should give you some comfort that given the representations the insurer makes on these annuities, that you don't have liability if these insurance companies go bankrupt.

Again, I don't think we have to harp on this too much. The minimum required distributions. We've talked about this. The IRS has updated mortality tables and you got to review and update the plan language to account for this new age. That's a plan amendment.

Brent Lipschultz:Now  bad news, the penalties. The penalty for failing to file a form 5500 is increased, $250 per day, up to a maximum of 150,000. Failure to file annual registration statements, the 8955, the penalty increased to $10 per participant up to a max of 50,000. Failure to file notice of change in status increased $10 per day, up to a maximum of 10,000. And failure to provide the required withholding notice on the state and federal withholding is a $100 per failure, up to a maximum of 50,000. And this applies  after the enactment of the SECURE Act.

On behalf of Denise and I, we thank you for attending. I think we came in about two minutes early, so we're going to give you two minutes of time back. We encourage you to participate in the networking event.

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