The New World of 403(b) - Cammack LaRhette Consulting

Transcription

The New World of 403(b) - Cammack LaRhette Consulting
The New World of 403(b):
Audits, Filing and Regulatory Compliance
Confidential Information – © 2009 All Rights Reserved
Meet the Speakers
Confidential Information – © 2009 All Rights Reserved
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Mike Webb,AIF®, CEBS
Vice President, Retirement Plan Services
Mike Webb joined Cammack LaRhette Consulting in 1991 and has provided retirement plan consulting services
spanning several industries for over 15 years, including hospitals and health care systems, cultural institutions,
foundations and manufacturing concerns.
Mike’s background is in the area of operational compliance. He was primarily responsible for establishing retirement
plan operating systems that comply with the latest federal regulations, through onsite support of human resources,
information systems, and payroll departments of large employers.
Mike was awarded the Accredited Investment Fiduciary® designation from the Center for Fiduciary Studies, a
nationally recognized training organization for fiduciaries, in 2005. In addition, he is currently the co-moderator of
Plan Sponsor’s “Ask the Expert” column for 403(b) plans. Mike is also currently the chair of the National Tax
Sheltered Accounts Association’s (NTSAA) Educational Committee, and was honored for his contributions to the
organization in 2004. He is also a frequent contributor to NTSAA/ASPPA joint designation program for 403(b)
professionals, and has been a featured speaker at several NTSAA National Conferences and Webinars, including
most recently a presentation in April 2008 on the 5500 requirements for 403(b) plans. Mike’s writing credits include
an article in the May/June 2006 Journal of Retirement Planning (“Healthcare Savings Plan Service Provider
Consolidation: A Case Study”) and an article in the September/October 2009 issue of The Profit Sharing/401(k)
Council of America’s Defined Contribution Insights (“The time is Now to Gear Up for the New 5500 Requirements”).
Mike has also served as an instructor for the CEBS program of the International Foundation of Employee Benefit
Plans.
Mike received a BS degree from Northwestern University, and a Master’s degree in Media Administration from
Syracuse University. He is a Registered Representative with the Financial Industry Regulatory Authority (FINRA).
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2
Ed Hilgendorf
Director Plan Compliance & Reporting Plan
Sponsor Services
Ed Hilgendorf is the Director of TIAA-CREF’s Plan Reporting and Audit group. Ed joined
TIAA-CREF in 1999 and formerly was the manager in the Internal Audit group. He
created and led TIAA’s Sarbanes Oxley Controls group focused on the regulatory
environment and SOX. Prior to joining TIAA-CREF, Ed worked as a Public Accountant.
Ed is a Certified Public Accountant and received a BBA/MBA in Accounting and
Computer Information Systems from Baruch College in New York.
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3
Dave Delgado
Benefit Plan Services
Dave Delgado has 22 years of experience with Crowe Horwath LLP specializing in the
areas of employee benefits and qualified retirement plans. His group specializes in
benefit plan audits, employee stock ownership plan administration and 401(k) plan
administration. Dave supervises over 200 audits of defined benefit pension plans, 401(k)
plans, and other employee benefit programs. He consults with clients on a variety of plan
qualification and administration issues, including designing and implementing 401(k)
plans and other retirement programs. Dave is a member of the American Institute of
Certified Public Accountants and is certified to practice accounting in fourteen
States. David is also on the board of DePaul University’s Ledger and Quill alumni
organization and is on the Finance and Audit committees for Edward Hospital in
Naperville, Illinois. Dave received his B.S. in Accounting degree from DePaul University.
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4
Top Ten Actions Colleges/Universities Should
Take NOW in the Current 403(b) Landscape
(From the Home Office in Cyberspace)
Mike Webb, AIF™, CEBS, Cammack LaRhette
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#1 Hire an Auditor!
• For ERISA 403(b) plans, 5500 reporting conforms to 401(k)
rules for 2009 plan year
• More complex – may require accounting assistance,
especially with multiple vendors
• Outside audit beginning in 2009 for large (100+ participant)
ERISA plans
• If you are a large ERISA plan sponsor and you have not
already hired an auditor, you should do so ASAP
• Process will be lengthy for 2009; if you wait until the last
minute, audit will not be completed
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#2 Finish your Plan Document
• ERISA Plans: amending your plan document to conform to
final regulations
• Non-ERISA Plans: drafting new document or amending
existing document
• January 1, 2010: deadline for plan document
• However, 403(b) compliance deadline – January 1, 2009 –
WAS NOT EXTENDED
• Relief for 2009 is limited
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#3 Examine vendor contracts
•
Ownership of the contract
• Individual– employee owns and has rights
• Individual contracts/custodial agreements
• Group contracts with individual certificates
• Group– employer has rights
• Employer can move out all assets from noncompliant
contracts; not an option with individual
• At some vendors, individual contracts will be problematic,
since contracts are not under employer control, and plan
level data for coordination of loans, hardships, etc. will
not be available
• In addition, certain contracts will be exempt from 5500
reporting/audit requirements
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8
#4 Revisit Non-ERISA status
• No issue for Public universities or Denominational colleges
university who sponsor church plans; Government/Church
plans not subject to ERISA
• Some private universities have historically attempted to
take advantage of an ERISA “safe harbor” exemption that
dates from 1979
• It appears that there is a sufficient conflict between the
safe harbor and the final 403(b) regulations that it may be
difficult/impossible to satisfy both sets of rules
• Thus, private universities who wish to maintain non-ERISA
status should seek the advice of benefits counsel with
specific expertise in this area
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9
#5 Consider Vendor Consolidation
• Difficulty in complying with 5500/audit requirements for 2009
Plan year
• Difficulty in complying with new regulations using multiple
vendors:
• Regulations require that the employer (or a third party) is to
coordinate vendor compliance with specific provisions, such
as loan limits and hardship distribution restrictions.
• If any vendor utilizes individual annuity contracts/custodial
agreements, such arrangements may not allow for the plan
level reporting required to comply with the 403(b)
regulations.
Confidential Information – © 2009 All Rights Reserved
10
#5 Consider Vendor Consolidation
• Leverage purchasing power of the institution so that
employees can obtain a benefit that is more cost effective than
they could obtain on their own.
• The division of purchasing power among several vendors has
a negative impact on pricing and plan features.
• Vendor enrollment packages encompass an overwhelming
amount of material (basic information such as fees, loan
provisions, etc. are frequently lacking).
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11
#5 Consider Vendor Consolidation
• Too many investment options!
• Consolidation can bring about administrative simplicity
(outsourcing), improved investment options, better education
& communication services, and significant cost savings for
participants.
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#6 Consider Plan Consolidation
• Compliance burden/liability multiplied by number of plans you
maintain, especially if ERISA
• In multiple vendor situations often a separate plan was
established for each vendor, or separate plans were
established for elective deferrals and employer contributions
• No current legal requirement to do so
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#7 Reign in your investment choices
• As with multiple vendors, a large number of investments can
complicate audit process
• Even in a single vendor plan, 100+ investment options can
exist
• A common misconception in ERISA plans is that fiduciaries
are protected under 404(c) if they offer a “universe” of
investment choices; 404(c) does not absolve a fiduciary of the
duty to prudently select/monitor the array of investment from
which a participant may choose, as well as the vendor who
administers the array
• University studies have demonstrated that a large number of
investments discourage participation.
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#8 Consider a Due Diligence process
• For ERISA plans, focused review process helps to maximize
investment results
• Establishes a process that helps protect the plan, participants
and the organization by minimizing liability (especially
important in today’s environment of increased fiduciary
scrutiny and a litigious society)
• Confirms that the plan is deriving value from fees paid to
investment providers
• Helps ensure that the plan maintains compliance and
competitiveness in the industry
• Ensure that informed decisions are made and consistent with
prudent investment practices/policy
Confidential Information – © 2009 All Rights Reserved
15
#9 Conduct an RFP
• Request for Proposal (RFP) process frequently used to
consolidate defined contribution plan into a single ongoing
program
• Even if you are absolutely delighted with current provider(s),
best practice is to conduct every 3-5 years
• Current vendor search environment extremely favorable
• Selected vendor should be able to consolidate data from
inactive vendors necessary for compliance with final
403(b)/5500 regulations
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16
#10 Don’t forget the Notice!
• Final regulations require that participants be provided with
meaningful notice of the right to make elective deferrals at
least once per plan year
• For 2009 plans with a calendar plan year should provide notice
no later than December 31st, 2009
• Notice can be simple– no model notice/language as yet
• Notice must generally be provided to ALL employees; old
exclusions, such as those for visiting professors and
collectively bargained employees, no longer exist.
Confidential Information – © 2009 All Rights Reserved
17
WORKING TOGETHER TO PREPARE FOR THE
NEW 403(B) PLAN REPORTING AND AUDIT REQUIREMENTS
403(b) Plans Subject to ERISA
For institutional investor use only. Not for use with or distribution to the public
HOW WE GOT HERE
ƒ IRS final regulations (2007)
ƒ First interpretive ruling in more than 40 years
ƒ Narrows the differences between other employer-sponsored retirement plans
and 403(b) plans
ƒ DOL FAB (2007)
ƒ Safe harbor plans
ƒ Determination based on all relevant facts and circumstances
ƒ Involve ERISA counsel
ƒ DOL final regulations (2007)
ƒ Revokes filing exemption
ƒ Mandates electronic filing
ƒ Acknowledgement of similarity to qualified plans
For institutional investor use only. Not for use with or distribution to the public
19
HOW TO BE SUCCESSFUL
ƒ Early involvement of the finance function
ƒ Early selection of and discussions with plan auditor
ƒ Preparation
ƒ
ƒ
ƒ
ƒ
ƒ
Availability of resources
Status of plan’s records
Documentation of internal processes
Documentation of internal controls
Identification of alternate vendors
- Orphan contracts
- Disability contracts
For institutional investor use only. Not for use with or distribution to the public
20
INTERNAL CONTROLS
ƒ Processes and procedures that prevent or detect errors
ƒ Controls can be in place in many different parts of the process
ƒ At your institution
ƒ At your payroll provider
ƒ At your plan recordkeeper
ƒ Auditors are required to understand and evaluate internal
controls
ƒ The presence of effective internal controls may reduce the
amount of testing that an auditor must perform
For institutional investor use only. Not for use with or distribution to the public
21
SAS 70 OPINIONS
ƒ Fair Presentation – Is the description accurate and does it include
everything an auditor would expect it to? (Type I and Type II)
ƒ Design – Are the controls designed appropriately to meet the control
objectives as of a specified date? (Type I and Type II)
ƒ Operating Effectiveness – Are the controls operating effectively over
a specified period of time? (Type II only)
Unqualified Opinion – Good
Qualified Opinion – Bad
For institutional investor use only. Not for use with or distribution to the public
22
New Reporting Requirements for Plans Subject to ERISA
For institutional investor use only. Not for use with or distribution to the public
23
MAJOR NEW FILING REQUIREMENTS FOR 403(b)
PLANS SUBJECT TO TITLE 1 OF ERISA
ƒ Effective for the 2009 Plan year, 403(b) plans that are subject to
Title 1 of ERISA will be subject to the same Form 5500, Annual
Return/Report of Employee Benefit Plan, requirements as 401(k)
type plans
ƒ Completion of the entire Form 5500 – not just the current
informational and benefit code items
ƒ Generally, for plans with over 100 participants a financial statement
audit will also be required
For institutional investor use only. Not for use with or distribution to the public
24
WHAT ARE THE AUDIT REQUIREMENTS?
ƒ Large plans will be required to have their financial statements
audited by an independent auditor for plan years beginning on or
after January 1, 2009.
ƒ Must include a comparative Statement of Net Assets.
ƒ Must attach a complete financial statement, including the
auditors’ opinion and any applicable footnotes to the financial
statements.
ƒ Auditors will assess the reasonableness of the beginning
balances.
For institutional investor use only. Not for use with or distribution to the public
25
ARE THERE ADDITIONAL REQUIREMENTS?
ƒ Summary Annual Report
ƒ Electronic Filing
For institutional investor use only. Not for use with or distribution to the public
26
WHEN IS THE FORM 5500 DUE?
If your plan year ends:
January 31
February 29
March 31
April 30
May 31
June 30
July 31
August 31
September 30
October 31
November 30
December 31
Your filing due date is: Your extended due date is:
August 31
November 15
September 30
December 15
October 31
January 15
November 30
February 15
December 31
March 15
January 31
April 15
February 29
May 15
March 31
June 15
April 30
July 15
May 31
August 15
June 30
September 15
July 31
October 15
For institutional investor use only. Not for use with or distribution to the public
27
TIAA-CREF’s Plan Reporting and Audit Support
For 403(b) Plans Subject to ERISA
and
First-Year Audit Requirements
For institutional investor use only. Not for use with or distribution to the public
28
WHAT TIAA-CREF IS DOING TO ASSIST WITH PLAN
REPORTING AND FIRST- YEAR AUDIT ISSUES
ƒ Developed industry standard reports
ƒ Issuing 2008 plan reports and certification of end-of-year asset
values for 403(b) plans with more than 50 participants
ƒ Providing standard auditor reporting package
ƒ Publishing Plan Sponsor Reporting & Audit Guide
ƒ Including 403(b) plan population in SAS 70
for 2008 and future years
ƒ Enabling online auditor access
For institutional investor use only. Not for use with or distribution to the public
29
AUDITOR ACCESS: AS EASY AS 1 – 2 - 3
For institutional investor use only. Not for use with or distribution to the public
30
WHAT TIAA-CREF IS DOING TO ASSIST
WITH PLAN REPORTING AND FIRST-YEAR AUDIT ISSUES
(cont’d)
Outreach
ƒ 403(b) Resource Center
ƒ 403(b) Outlook article series
ƒ Webinars
ƒ Workshops
ƒ ACCESS e-newsletter
ƒ Mailings
ƒ SPARK
ƒ Industry association meetings
For institutional investor use only. Not for use with or distribution to the public
31
A CENTRAL PLAN REPORTING RESOURCE
For institutional investor use only. Not for use with or distribution to the public
32
PLAN REPORTING AND AUDIT SUPPORT
ƒ Comprehensive reporting package consisting of 16 reports for
the 2008 Plan Year End report package.
ƒ New Plan Sponsor Reporting & Audit Guide
ƒ Enhanced client experience on the web
ƒ Industry-standard validations and controls
ƒ Draft signature-ready Form 5500 for plan year ending 2009
For institutional investor use only. Not for use with or distribution to the public
33
For institutional investor use only. Not for use with or distribution to the public
34
FORMAT SELECTION PAGE
For institutional investor use only. Not for use with or distribution to the public
35
DOWNLOAD POP-UP AND ZIP FILES
For institutional investor use only. Not for use with or distribution to the public
36
CONFIRMATION PAGE
For institutional investor use only. Not for use with or distribution to the public
37
TIAA-CREF’s Plan Sponsor Reporting & Audit Guide –
2008 Plan Year Reporting for Clients with 403(b) Plans
For institutional investor use only. Not for use with or distribution to the public
38
PLAN SPONSOR REPORTING & AUDIT GUIDE
ƒ
SECTION ONE. INTRODUCTION
ƒ
ƒ
CHAPTER 1: TIAA-CREF
SECTION TWO. PLAN SPONSOR GUIDE
ƒ
CHAPTER 2: YEAR-END REQUIREMENTS
ƒ
CHAPTER 3: PLAN YEAR-END REPORT PACKAGE OVERVIEW
ƒ
CHAPTER 4: REPORT DESCRIPTION, SAMPLES AND USE
ƒ
SECTION THREE. AUDIT GUIDE
ƒ
CHAPTER 5: GENERAL AUDITOR GUIDANCE
ƒ
CHAPTER 6: STATEMENT ON AUDITING STANDARDS (SAS) 70
ƒ
CHAPTER 7: LIMITED-SCOPE VS. FULL-SCOPE AUDIT
ƒ
CHAPTER 8: REPORTING INFORMATION RELATED TO TIAA-CREF
INVESTMENTS
ƒ
SECTION FOUR. FREQUENTLY ASKED QUESTIONS
ƒ
SECTION FIVE. APPENDICES
For institutional investor use only. Not for use with or distribution to the public
39
CERTIFICATION LETTER
For institutional investor use only. Not for use with or distribution to the public
40
For institutional investor use only. Not for use with or distribution to the public
41
For institutional investor use only. Not for use with or distribution to the public
42
SUPPLEMENTAL FINANCIAL REPORTS
ƒ Participant Detail Summary
ƒ Transaction History by Fund Report
ƒ Contribution Report
ƒ Loan Activity Report for Participant Loans
ƒ Loan Activity Report for Plan Loans
ƒ Outstanding Loan Report for Participant Loans
ƒ Outstanding Loan Report for Plan Loans
ƒ Distribution Report
ƒ Direct Fee Report
ƒ Forfeiture Account Report
ƒ Forfeiture Account Report – Legacy System
For institutional investor use only. Not for use with or distribution to the public
43
For institutional investor use only. Not for use with or distribution to the public
44
For institutional investor use only. Not for use with or distribution to the public
45
For institutional investor use only. Not for use with or distribution to the public
46
For institutional investor use only. Not for use with or distribution to the public
47
For institutional investor use only. Not for use with or distribution to the public
48
For institutional investor use only. Not for use with or distribution to the public
49
SUPPLEMENTAL REPORTS TO SUPPORT FORM 5500
ƒ 5500 Reportable – Schedule of Assets Held for Investments
ƒ 5500 Reportable – Statement of Changes to Net Assets
Supplemental Reports Included in the 2009 Reporting Package:
ƒ Schedule A (Insurance Information)
ƒ Schedule C (Service Provider Information)
ƒ Schedule D (DFE/ Participating Plan Information)
ƒ Schedule H (Financial Information)
ƒ Schedule H, Line 4i (Schedule of Assets)
ƒ Schedule I (Financial Information— Small Plan)
ƒ Rate Basis for Retirement Annuities and Group Retirement Annuities
For institutional investor use only. Not for use with or distribution to the public
50
For institutional investor use only. Not for use with or distribution to the public
51
For institutional investor use only. Not for use with or distribution to the public
52
ACTION ITEMS
9
Engage your organization’s Finance and Accounting team
9
Determine who “owns” the audit
9
Ensure the right people in your organization have access to the secure
administrator website
- Compliance and Reporting role to access plan financial reports
9
Establish internal policies, procedures and controls
9
Evaluate the timely remittance of employee contributions
9
Select an independent qualified auditor
9
Authorize your auditor to have access to the auditor reporting package for
your plans
9
Email us your auditor contact info at [email protected] to have them receive
an email invitation to our auditor webinars
9
Share the Plan Sponsor Reporting & Audit Guide with your auditor
9
Contact your Institutional Relationships Team or the Administrator Telephone
Center with any questions
For institutional investor use only. Not for use with or distribution to the public
53
HELPFUL WEBSITES
Department of Labor (DOL) website:
http://www.dol.gov/. For Small Pension Plan Audit
Waiver type in “Small Pension Plan Audit Waiver” in the
search field.
The DOL provides Electronic Filing requirement on their
website: http://www.efast.dol.gov
The DOL provides guidance on selecting an
independent qualified auditor on their website:
http://www.dol.gov/ebsa/publications/selectinganauditor
.html
For institutional investor use only. Not for use with or distribution to the public
54
The 403(b) Plan Sponsor Resource Center of the AICPA’s
Employee Benefit Plan Audit Quality Center also has helpful
information on audit quality and auditor selection.
http://ebpaqc.aicpa.org/Resources/Plan+Sponsor+Resource+
Center
TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors
Services, Inc., members FINRA, distribute securities products. Annuity contracts and
certificates are issued by Teachers Insurance and Annuity Association (TIAA) and College
Retirement Equities Fund (CREF), New York, NY.
©2009 Teachers Insurance and Annuity Association-College Retirement Equities Fund
(TIAA-CREF) New York, NY 10017
C44922
For institutional investor use only. Not for use with or distribution to the public
55
Preparing for the Audit of Your
403(b) Plan
Prepared and presented by:
Dave Delgado, Partner
(630) 586-5197
Crowe Horwath LLP
56
Presentation Highlights
¾Your responsibility to the plan
¾The audit team
¾Finding a qualified Independent Plan
Auditor
¾Why does a quality plan audit matter?
¾Plan service Providers
¾Limited vs. Full-Scope Audits
¾Information needed for the audit
57
Your Responsibility to the Plan
As a plan sponsor, you are
responsible for the following:
◦ Plan design and documentation
◦ Timely and accurate administration
and record keeping (including
record retention)
◦ Trustee services
◦ Ensuring plan is in compliance with
its tax exemption
◦ Employee communication and
education
◦ Investment management (i.e.,
investment mix and offerings)
58
The Audit Team- Who is involved? Who is
in charge?
Designate one individual with the primary responsibility
for the audit and a team that can respond to the
auditors regarding:
◦
◦
◦
◦
payroll,
plan administration,
plan governance and
financial accounting
(application of GAAP to
benefit plan)
.
59
Finding a Qualified Independent Plan Auditor
Select an auditor who has prior
experience with benefit plans and can
perform a quality audit.
The auditor should be a member of the
AICPA Employee Benefit Plan Audit
Quality Center (EBPAQC)
For assistance with selecting a qualified
audit to audit your plan, consult the
following:
◦ The United States Department of
Labor website “Selecting An Auditor
For Your Employee Benefit Plan”
(http://www.dol.gov/ebsa/publications/
selectinganauditor.html)
60
Finding a Qualified Independent Plan Auditor
(continued)
Below are a few questions and responses from the United States Department of Labor
website “Selecting An Auditor For Your Employee Benefit Plan” that should help
you determine if your auditor is qualified:
y
Is a plan auditor required to be licensed or certified?
◦
y
Is a plan auditor required to be independent?
◦
y
Auditors of employee benefit plans should not have any financial interests in the plan or the plan
sponsor that would affect their ability to render an objective, unbiased opinion about the financial
condition of the plan.
Should a plan auditor have experience in auditing employee benefit plans?
◦
y
Federal law requires that an auditor engaged for an employee benefit plan audit be licensed or
certified as a public accountant by a State regulatory authority.
One of the most common reasons for deficient accountants’ reports is the failure of the auditor to
perform tests in areas unique to employee benefit plan audits. The more training and experience
that an auditor has with employee benefit plan audits, the more familiar the auditor will be with
benefit plan practices and operations, as well as the special auditing standards and rules that apply
to such plans.
Should I request references and check licenses?
◦
When engaging an auditor, you may wish to obtain references and discuss the auditor’s work for
other employee benefit plan clients. If you have additional questions, you may also wish to verify
with the appropriate State regulatory authority that the provider holds a valid, up-to-date license
or certificate to perform auditing services.
61
Why Does a Quality Audit Matter?
Per the EBPAQC, a quality audit is necessary for the
following reasons:
◦ It helps ensure the financial
integrity of the plan and
protects plan assets.
◦ It helps the plan administrator
carry out its legal
responsibilities to file a
complete and accurate annual
return/report for the plan each
year.
62
Plan Service Providers
Determine who are the third party services providers
that will provide the information needed to complete
the audit of your plan.
These third party service providers may include the
following:
◦
◦
◦
◦
◦
Payroll provider (i.e., ADP, Ceridian, Paychex, etc.)
Custodian/trustee (i.e., TIAA-CREF, Fidelity, Vanguard, etc.)
Investment manager(s)
Recordkeeper
Legal counsel
63
Limited vs. Full-Scope
Limited-Scope Audits
Full-Scope Audits
y
A qualified trustee or custodian (i.e. bank
or insurance company) certifies in writing
that their plan level financial reports are
complete and accurate
y
The auditor should obtain an understanding
of internal controls regarding plan
investments (i.e. fair value, investment income
etc.)
y
The auditor can rely on the accuracy and
completeness of the plan level investment
information certified information (plan
assets and investment income) without
having to test it.
y
y
The auditor does not need to obtain an
understanding of the certifying institution’s
internal controls regarding investments.
y
The scope limitation and the
corresponding limitation of the auditor’s
work extend only to investments and
related investment information certified by
the qualified trustee or custodian.
The objectives of auditing procedures applied
to investments and related transactions are to
provide the auditor with a reasonable basis
for concluding:
◦ whether all investments are recorded and
exist and owned by the plan
◦ whether investments transactions are
recorded and investments are valued in
conformity with generally accepted
accounting principles (GAAP)
◦ .whether investment transactions are
initiated in accordance with the
established investment policies.
64
Service Provider Audit Information
Necessary plan information for the audit includes the following:
◦ Plan level reporting for the current year including summary of yearto-date plan activity, detail of significant categories of transactions
(such as contributions, distributions, purchases and sales, loan
payments, etc.), and detailed listing of investments as of the plan year
end.
◦ Plan level reporting for the prior year including detailed listing of plan
investments as of the end of the prior year. (Note: If the plan changed
service providers, you will need to request this information from the
prior provider.)
◦ Participant level reporting summarizing the activity for each
participant account for the whole plan year.
◦ Will the service provider have a Type II SAS 70 for the plan year?
◦ Will the service provider certify the plan investment reports, allowing
the auditor to perform a limited-scope audit?
65
How Do I Prepare for the Audit?
Get your plan’s books and records in shape.
◦ General ledger and trial balance;
◦ Contribution schedules, including date remitted and deposited and record of proper
authorization;
◦ Copies of wire transfers or other documentation showing date and amount of deposits;
◦ Copies of all paper documents (such as disbursement, investment allocation, contribution
deferral percentage election, participation, etc.); and
◦ Copies of interim reports and statements.
Establish and document internal controls over the plan’s financial reporting
process.
◦ Authorization of plan transactions (such as investment offerings and policies, investment
transactions, contribution formulas and allocation practices, benefit payments, administrative
expenses, etc.); and
◦ Monitoring of service providers, including review of SAS 70, documentation of user controls,
and understanding investment valuation methodology (FAS 157).
Ensure that the plan is in compliance with the tax exemption requirements.
66
Questions to Expect from Your Auditor
Below are a few questions to expect from your auditor as noted on
the EBPAQC website:
◦ Have any plan amendments been adopted or become effective for the year
under audit, or after the plan’s year end?
◦ Who will prepare a trial balance of all financial activity of the plan for the year?
◦ Who prepares the Form 5500s and plan financial statements? What are their
qualifications and experience?
◦ Who reviews service-provider activity to determine whether services are
compliant with agreements, contracts and/or other such agreements?
◦ Who internally reviews the SAS 70 report and who monitors user controls as
detailed in the SAS 70 reports?
◦ Does plan management focus on creating a culture of honesty, openness and
assistance with employees who participate in the plan?
For a list of questions to expect from your auditor, consult the
EBPAQC website.
◦ http://ebpaqc.aicpa.org/Resources/EBPAQC+Primers/403(b)+Questions+to+Expect+from+
Your+Plan+Auditor.htm
67
Audit Information Requests
In order to complete the audit of your plan, your auditor will request
documents, schedules, and information from plan management
covering various aspects of your plan.
Typically, the audit information request will be communicated in a
planning letter or client assistance letter.
The requests will fall into the following general categories:
◦
◦
◦
◦
◦
◦
◦
◦
General plan information
Plan internal controls
Financial reporting information
Cash and investments
Contributions, rollovers, and forfeitures
Benefits paid and expenses
Documentation requested for selected participants
Compliance testing documentation
68
General Plan Information Requests
A few common audit requests for general plan
information are as follows:
◦ Executed copies of the latest plan documents and trust agreements, plus any
amendments
◦ Copy of the summary plan description (SPD) and, any summary of material
modification (SMM)
◦ Sample of enrollment packages provided to employees
◦ Listing of members of the board of directors/trustees, audit committee and
internal committee responsible for plan oversight/governance
◦ Listing of key accounting and management personnel associated with the plan,
including contact information
◦ Copy of employee handbook or personnel manual
◦ Copies of minutes from board/committee meetings
◦ Copy of most recent IRS determination or opinion letter for the plan
◦ Copy of proof of fidelity bonding related to benefit plans
◦ Copy of ethics and employee conduct policy, if not included in personnel
manual
◦ Copies of fraud hotline (i.e., whistle-blower) logs and dispositions
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Plan Internal Control Requests
A few common audit requests for plan internal control
information are as follows:
◦ Copies of any procedural/process memos or flowcharts detailing
the key controls of the plan (eligibility, contributions,
distributions, payroll, etc.)
◦ Copies of job descriptions
◦ Copies of accounting manuals
◦ Copies of internal control documentation of payroll and human
resources systems
◦ Copy of SAS 70 from third-party administrators and
service providers, along with documentation of the
plan’s responses to the “user controls” identified
therein
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Financial Reporting Information
Requests
A few common audit requests for financial reporting
information are as follows:
◦ Year-end reporting packages from third-party
administrator (most recent plan year activity, when
available) and investment statements
◦ For limited scope audit, copy of qualified bank or
insurance company certification of plan investments held
in accordance with 29 C.F.R. § 2520.103-5.
◦ Draft copy of financial statements, including:
Statement of Net Assets Available for Benefits at plan year end
(with comparative statement as of prior plan year end)
◦ Statement of Changes in Net Assets Available for Benefits for the
plan year
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Financial Reporting Information
Requests (cont.)
◦ Notes to financial statements, including description of the plan,
summary of accounting policies, investment information
disclosures, any related party transactions, any plan termination
provisions, plan tax status
◦ Supplemental schedules as required by instructions to Form 5500
◦ Copy of draft and final Form 5500 (when available)
72
Cash and Investment Requests
A few common audit requests for cash and investment information
are as follows:
◦ Copy of investment policy statements
◦ Statement of plan assets as of plan year end and plan activity for the
year ended, including schedule of assets held and schedule of reportable
transactions, as applicable
◦ Reconciliation of the aggregate of the participant accounts to assets per
the trust statements, with explanations for any variances
◦ Statement of plan assets and plan activity for first quarter after end of
the plan year
◦ Bank statements of all cash accounts held outside of the trust, if any
◦ Executed copies of the contracts/policies for any insurance contracts
◦ Access during audit fieldwork to participant balance reports as of plan
year end
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Contribution, Rollover and Forfeiture
Requests
A few common audit requests for contribution, rollover, and forfeiture
information are as follows:
◦ Reconciliation of total participant contributions per the recordkeeper to
total plan contributions per the trustee at the end of the plan year
◦ Payroll records for each location participating in the plan
◦ Detail listing of employee and employer contributions and loan repayments
with pay period ending dates and dates when contributions/loan
repayments were remitted to the trust
◦ Reconciliation of employee deferrals, employer match/discretionary and
loan repayments per the trustee to payroll totals and amounts recorded by
recordkeeper
◦ Contributions receivable detail (employee and employer) as of plan year
end (if any)
◦ Employer matching and/or profit sharing contribution, if any, support
(contribution authorization and wire transfer support)
◦ Detail of rollovers into the plan
◦ Detail of forfeiture accounts, if applicable
74
Benefits Paid and Expense Requests
A few common audit requests for benefits paid and expense
information are as follows:
◦ Listing of all distributions by type (e.g., hardship, termination, death,
QDRO), made during the plan year (the listing should tie in total to
total distributions per the trust statements)
◦ Distribution application forms for selected audit sample
◦ Detail of any benefits approved but unpaid as of plan year end, if any
◦ Report of disapproved benefit payment, if any
◦ List of and explanation of deemed distributions, if any
◦ Check register
◦ Documentation of the client and recordkeeper procedures for
investigating long-outstanding benefit checks
◦ Detail of any administrative expenses paid by the plan or reimbursed by
the sponsor (e.g., accounting fees, investment fees, legal fees, appraisal
fees, trustee fees)
75
Documentation for Selected
Participant Requests
A few common audit requests for documentation for
selected participants are as follows:
◦
◦
◦
◦
◦
◦
◦
◦
◦
◦
◦
◦
◦
◦
Personnel file information, including:
I-9 Form noting date of birth, date of hire
Employment application
Salary information sheet or hourly rate form
403(b) enrollment or opt-out form
Copies of 1099-Rs
Timecards
Payroll registers
Participant statements (either printed or online) for individuals selected for contribution,
eligibility and distribution testing
Investment election form or record
Distribution request form
Canceled checks for selected audit sample
Loan request form, including promissory note and amortization schedule
Rollover contribution request form, including copy of check or evidence of wire transfer
76
Compliance Testing Requests
A few common audit requests for compliance testing information
are as follows:
◦ Copy of the year-end compliance testing required by the Internal
Revenue Code including documentation of any action required
by the testing results
◦ IRC §415 annual additions limit IRC
◦ §414(s) compensation testing
◦ IRC §414 controlled group/
affiliated service group analysis
◦ IRC §401(a)(9) minimum
required distribution calculations
77
Resources
Below is a list of resources available to help
you prepare for the audit of your plan:
◦ Employee Benefit Plan Audit Quality Center
x http://ebpaqc.aicpa.org/
◦ United States Department of Labor
x http://www.dol.gov
78
Questions?
Michael A. Webb, AIF®, CEBS
Vice President, Retirement Plan Services
Cammack LaRhette Consulting
New York City, NY
Phone: 646-839-8232
Email: [email protected]
Ed Hilgendorf
Director, Plan Reporting and Audit Group
TIAA-CREF
New York, NY
Phone: 212-490-9000 ext 7632
Email: [email protected]
David Delgado
Benefit Plan Services Partner
Crowe Horwath, LLP
Oak Brook, IL
Phone: 630-574-7878
Email: [email protected]
Confidential Information – © 2009 All Rights Reserved
79

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