Report

A&E Quarterly Regulatory Round Up Q2 2022

April 11, 2022
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Q2 2022

We are pleased to share with you our “Architecture and Engineering (“A&E”) Quarterly Regulatory Round Up,” highlighting regulatory developments and insights that are important to the A&E firm sector.

Our Q2 report takes a look at the Infrastructure Investment and Jobs Act (“IIJA” or the “Infrastructure Bill”) and what A&E firms need to consider to capitalize on Infrastructure Bill funding, the Direct Recognition Variable Investment Plan (“VIP”), a type of qualified retirement plan that offers highly compensated targeted employees a way to defer up to $330,000 of income from taxes when combined with other qualified retirement plans, and an update on PPP loan forgiveness and the U.S. Occupational Safety and Health Administration (“OSHA”) vaccination and testing Emergency Temporary Standard (ETS).

Is Your A&E Firm Ready to Capitalize on the Infrastructure Bill?

By: J. Scott Duda, CPA, Partner, Assurance Services, Professional Services Leader

Through The Infrastructure Investment and Jobs Act (“IIJA” or the “Infrastructure Bill”), the Federal government is preparing to disburse more than $1.2 trillion in funds to upgrade transportation, water systems, the energy grid, highways and major roads, as well as to improve the nation’s broadband access. A&E firms will reap the benefit of a significant number of opportunities and will need to develop the tangible strategies and action plans needed to optimize their business and operations – examining their people, processes, and technology. To learn more about how your A&E firm can capitalize on Infrastructure Bill funding, read our recent article: Is Your A&E Firm Ready to Capitalize on the Infrastructure Bill?

Defer up to $330,000 Annually on a Tax-Deferred Basis: The Direct Recognition Variable Investment Plan (VIP)

By: Jeffrey A. Gump, Financial Advisor, Cherry Bekaert Wealth Management LLC

For successful business owners and C-suite executives in architectural and engineering (A&E) firms, paying taxes on hard earned income can be frustrating. Direct Recognition Variable Investment Plans (DR-VIP) are a type of qualified retirement plan that offers each highly compensated targeted employee a way to defer up to $330,000 of income from taxes when combined with other qualified retirement plans such as a 401(k) and profit-sharing plans. In general, qualified plans have inherent advantages such as:

  • money contributed into these plans grows tax deferred, and
  • the assets accumulated in these plans are safe from creditors.

However, VIP Plans offer many other advantages that traditional defined benefit or cash balance plans don’t offer such as:

  • benefits can be valued daily
  • assets can be invested in accordance with owner objectives to optimize returns, with little or no risk of underfunding or overfunding of the plan, and
  • annual contributions to these plans are predictable, which allows owners to budget for them early in the year.

In addition, because VIP Plans can be valued daily, they can be administered alongside the firm’s 401(k) and profit-sharing plan, to allow owners and other participants of these plans to conveniently view the value of all their retirement funds in one place. This makes these plans extremely transparent, current, and easy to understand. The only difference a participant will experience between the plans will be that they will not be able to change the investments in the VIP Plan; whereas they will be able to change investments in their 401(k) and profit-sharing plans.

The structure and design of VIP Plans is also very flexible and caters to the owner’s or management team’s objectives. VIP Plans allow these targeted high earners to maximize their contributions while keeping contributions to staff and others in the plan to a minimum. Typically, A&E firms are already providing either a match or some level of profit-sharing contribution to their employees. VIP Plans leverage the existing contributions being provided to achieve increased amounts for the owners and C-Suite executives, but usually additional profit-sharing contributions are necessary to maximize these targeted high earners objectives.

Direct Recognition Variable Investment Plans (DR-VIP) are very specialized and integrated plan designs that are created and administered by the actuaries at Cherry Bekaert Benefit Consulting. The Financial Advisors at Cherry Bekaert Wealth Management typically work hand-in-hand with the benefits consulting group to help clients with the investment planning for their VIP and 401(k) plans. Please reach out if you would like to learn more about VIP Plans.

DISCLOSURE:

“Investment Advisory Services and insurance products are offered through Cherry Bekaert Wealth Management, LLC.  Cherry Bekaert Wealth Management LLC and Cherry Bekaert LLP are affiliated companies.  Cherry Bekaert Benefits Consulting and Cherry Bekaert Wealth Management LLC partner to service VIP but are not affiliated companies.”

Paycheck Protection Program (PPP) Loan forgiveness

By: Brynn McNeil, CPA, Partner, Assurance Services, Professional Services & Government Contracting Industry Practices

Cherry Bekaert’s Professional Services team continues to keep our eye on the Paycheck Protection Program (PPP) forgiveness impact on overhead rates for A&E firms. In 2021, the U.S. House Rules Committee attached the Brown-Katko Amendment to the National Defense Authorization Act (NDAA). The amendment was grouped with several bipartisan amendments and was passed in the House of Representatives. The amendment was co-sponsored by three Republicans and two Democrats, illustrating the bipartisan support for addressing the challenge facing firms that work with State and local DOT’s. However, Senate leaders have not been as supportive.

Moving into 2022, various advocates are focusing their efforts on the Senate, as there is continued urgency to ensure the treatment is addressed prior to firms being negatively impacted by the adjusted rate. In particular, the spending bills associated with various agencies expected to be passed in early 2022 provide opportunities to attach amended PPP language. Senator Rand Paul, as the senior Republican on the Senate Small Business Committee, has been a primary holdout in support of the proposed changes to the treatment of PPP loans under the Federal Acquisition Regulation (FAR) credits clause.

There continues to be significant bipartisan support for a potential change and so continued communication with lawmakers in both the House and Senate is critical.

We will continue to monitor the situation and provide updates as warranted.

OSHA Pulls Vaccine Mandate After Supreme Court Setback but Looks to Propose as a Rule

By: J. Scott Duda, CPA, Partner, Assurance Services, Professional Services Leader

A U.S. Supreme Court majority found the U.S. Occupational Safety and Health Administration vaccination and testing Emergency Temporary Standard (ETS) was likely to be successfully challenged in court, killing the standard in January by a six-three vote.

A&E Firms and other business groups celebrated rescinding the mandate while looking at industry specific regulations. OSHA noted they planned to introduce the ETS as a proposed rule rather than a mandate in order to finalize a permanent COVID-19 Healthcare Standard. OSHA’s rule making process takes at least 12-36 months and requires input from industry stakeholders.

A&E Firms were quick to hail OSHA for withdrawing the Biden administration’s COVID-19 vaccination or testing emergency mandate for employers with 100 or more employees. While a potential vaccination-or-test rule that considers comment from stakeholders in the A&E industry as well as other industries could potentially gain traction, many would prefer industry specific guidance focused on healthcare and other workers more at risk rather than a potential rule that covers all employers with 100 or more employees.

We will continue to monitor and report as the situation warrants.