plantemoran.com Audit Requirements? January 19, 2010

Transcription

1 plantemoran.com Confused About 403(b) Audit Requirements? January 19, 2010

2 Housekeeping To Join the Voice Conference Dial Technical issues dial *0 Q&A We ll leave time for Q&A at the end of the session You can submit questions at any time through the webcast console Presentation slides You will receive a follow up with a link to download the slides from today s presentation. 2

3 Presenters Theresa Banka - presenter Partner, Employee Benefit Plan Audit Team Carrie Mendoza presenter Associate, Employee Benefit Plan Audit Team Aaron Prince moderator Associate, Employee Benefits Consulting 3

4 Agenda When is an audit required? The rule and how it could provide an exception to the audit requirement Limited relief provided by Field Assistance Bulletin st year audit considerations Resources 4

5 When is an audit required? Background Prior to 2009, 5500s have specifically exempted 403(b) plans from audit requirements Only an abbreviated Form 5500 may have been required New regulations eliminated the 403(b) audit exemption 5

6 When is an audit required? Large plan Form 5500 Schedule H Generally, 100 participants or more Require an audit Small plan Form 5500 Schedule I Under 100 participants No audit required 6

7 When is an audit required? When Does the 403(b) Audit Requirement Take Affect? Plan years beginning on or after January 1, 2009 First plan audits for calendar year 403(b) plans will be conducted during 2010 Audit requirements will be the same for all qualified retirement plans (defined d benefit, defined contribution including 401(k) and 403(b) 7

8 General rule General Rule: If the plan has greater than 100 eligible participants as of the beginning of the plan year, the plan will require an audit (Large plan Form 5500 and schedule H) 8

9 Eligible participants Eligible participants - An eligible participant includes: Employees actively participating (contributing) in the plan Employees eligible for the plan, but who decline participation Former participants/beneficiaries p that have a vested balance remaining in the plan (retirees, terminated employees) 9

10 Participant count example Example 1 Example Facts: 150 employees are contributing to the Plan as of the beginning of the Plan year Solution: 150 employees > 100 participants as of the beginning of the year Audit is required 10

11 Participant count example Example 2 Example Facts: Calendar year plan At 1/1, 50 employees are deferring pay to the 403(b) plan At 1/1, 10 terminated employees with funds in the Plan At 1/1 100 eligible employees that elect not to defer Is an audit required? 11

12 Participant Count Example Example 2 Solution 50 actively deferring employees 10 terminated employees with funds in the Plan 100 eligible employees that elect not to defer 160 Total participant count An audit is required, since 160 participants > 100 participants i t as of the beginning i of the Plan year 12

13 Rule Rule (exception to General Rule): If the plan has between participants at the beginning of the year, and a Form 5500 was filed for the prior year, you may elect to complete the 5500 in the same manner as was filed for the prior year s 5500 ( large plan or small plan ). In practice If less than 121 participants as of the first day of the plan year; can still file as a small plan (and avoid the audit) if filed as a small plan in the prior year. 13

14 Rule 403(b) Plan Considerations: Prior to 2009, participant counts were not required to be reported on 5500 nothing to reference in determining large or small plan filing For 2009,,plans will have to determine if the 2008 Form 5500 would have been large or small filing in order to take advantage of the Rule. 14

15 Rule In 2009, 403(b) plans must determine the beginning of year participant count. Step 1 - Start at 1/1/09- Calculate if under 121 participants. If OVER 120 participants- STOP, the Plan needs an audit If UNDER 121 participants i t continue to next step Step 2- Calculate if 1/08 participant count is under 121 participants Continue process (keep going back years) if count is between 100 and 120 participants Go back years until the level was under 100 or over 120 participants 15

16 Audit decision tree 16

17 Audit decision tree (continued) If plan is covered under Title I ERISA, what Annual Report form did the Administrator file for the Plan last year? 5500 Schedule I How many participants does the Plan have at the beginning of the year? < 100 Participants 100 to 120 > 120 Participants 2 Participants Administrator should file Form 5500 Schedule I which does not require an audit report Administrator can elect to file Form 5500 Schedule I (same form as prior year) which does not require an audit report Administrator has a choice of Forms they can file 17 Administrator must file Form 5500 Schedule H which requires an audit Administrator can elect to file IRS Form 5500 Schedule H which requires an audit report 2 To be eligible for exception plan had to have between 80 and 120 participants at the beginning of the previous year.

18 Rule Example 1- Plan facts as of 1/1/09 Number of active participants 50 Number of employees ees eligible to participate who are not participating 20 Number of inactive participants receiving or entitled to receive future benefits 10 Number of deceased participants ts who have beneficiaries receiving or entitled to receive benefits under the Plan 19 Is an audit required? 18

19 Rule Example 1- Solution Total participants (for ERISA purposes)= 99 No audit required, ed small plan filing Schedule I 19

20 Rule Example 2- Plan facts as of 1/1/09 Number of active participants 50 Number of employees ees eligible to participate who are not participating 20 Number of inactive participants receiving or entitled to receive future benefits 10 Number of deceased participants ts who have beneficiaries receiving or entitled to receive benefits under the Plan 20 20

21 Rule Example 2-1/1/09 Solution Total participants (for ERISA purposes)= 100 Generally, would file Schedule H large plan filing with an audit Consider rule Participant count is at 100, conclude must go back another year to determine if exception is available 21

22 Rule Example 2- Plan facts as of 1/1/08 Number of active participants 45 Number of employees ees eligible to participate who are not participating 20 Number of inactive participants receiving or entitled to receive future benefits 10 Number of deceased participants ts who have beneficiaries receiving or entitled to receive benefits under the Plan 20 22

23 Rule Example 2-1/1/08 Solution Total participants (for ERISA purposes)= 95 Would have been a Schedule I small plan filing with no audit Can elect to file Schedule I and avoid the audit requirement Not required to go back any further since under 100 participants 23

24 Field Assistance Bulletin Biggest challenge for 403(b) plans is: Former participants/beneficiaries that have a balance remaining in the plan Collection of individual contracts not typically tracked Multiple vendors over many years On July 20, 2009, the Department of Labor issued Field Assistance Bulletin No , Annual Reporting Requirements for 403(b) Plans 24

25 Field Assistance Bulletin The administrator of a 403(b) plan does not need to treat annuity contracts and custodial accounts as part of 403(b) plan s assets for purposes of the 5500 requirements provided that: 1. the contract or account was issued to a current or former employee before January 1, 2009; AND 2. the employer ceased to have any obligation to make contributions (including employee salary reduction contributions), and in fact ceased making contributions to the contract or account before January 1, 2009; AND 3. all of the rights and benefits under the contract or account are legally enforceable against the insurer or custodian by the individual owner of the contract or account without any involvement by the employer; AND 4. the individual owner of the contract is fully vested in the contract or account. 25

26 Field Assistance Bulletin Current or former employees with only contracts or accounts that are excludable from the plan s Form 5500 under the transition relief do not need to be counted as participants p covered under the plan for Form 5500 annual reporting purposes. Excludable assets and participants for 5500 purposes are not necessarily excludable from the Plan s audited financial statements The DOL will not reject a Form 5500 on the basis of a qualified, adverse or disclaimed opinion if the accountant expressly states that the sole reason for such an opinion was because such pre-2009 contracts were not covered by the audit or included in the plan s financial statements. 26

27 Field Assistance Bulletin Participant counts for Active employees + Eligible employees + Former participants/beneficiaries - Pre contracts that qualify for transitional relief = Total participant count for 5500 purposes 27

28 1 st year audit considerations Preparing for the first audit Information required 2008 and 2009 statement of net assets will be required in 2009 financial statements (comparative information required) Statement of changes in net assets required for 2009 only (optional for 2008) Need to act now to ensure data will be available 28

29 1 st year audit considerations Preparing for the first audit (continued) Participant records A combined report showing all participants p accounts as well as plan totals showing balances and activity Sponsor will need to summarize if no combined reporting Ensure data is complete and accurate All vendors, all participants should be included in data since establishment of plan Including former participants with account balances that were not paid out via an allocated contract (even if excluded under Field Assistance Bulletin 2) 29

30 1 st year audit considerations Preparing for the first audit (continued) Determine type of audit required (limited or full scope) Limited scope -auditors do not audit investment values and related income, rather auditors rely on certified information from asset custodian Full scope auditors audit investments including valuation and related income Note N t -all other non-investment t and related investment income is audited the same 30

31 1 st year audit considerations Preparing for the first audit (continued) Certification from qualified asset custodian = Limited scope audit No certification = Full scope audit Determine if certification is available for 2008 as well 31

32 Audit scope Does the plan have an institutional trustee or custodian responsible for all or part of the plan s assets? No Yes The plan is required to have a full-scope audit Are the assets held by a bank, trust company, thrift, or similar institution or by an insurance carrier which is regulated/supervised and subject to periodic examination by a federal or state agency? No Yes The plan requires a fullscope audit Did the plan administrator elect to invoke the limitedscope audit exception, and did the institution holding the assets provide the required certified listing of these assets and related information? 1 No Yes 1 See paragraph of the AICPA Audit Guide for Audits of Employee Benefits Plans for guidance on the impact on the independent auditor s report when only a portion of the plan s investments are certified by a qualified custodian or trustee. The plan requires a fullscope audit 32 The limited-scope audit exception applies to these assets

33 1 st year audit considerations Preparing for the first audit (continued) Ensure Accounting/Control Procedures in place Key Accounting Procedures and Controls Investments - sponsor should regularly received and review investment statements from the asset custodian Reconciliations - prepared on a regular basis (monthly/quarterly and annually) Examples- contributions withheld from payroll to contributions received by the plan, participant account totals to investment statements, distributions/benefit payment detail to investment activity, etc.) 33

34 1 st year audit considerations Preparing for the first audit (continued) Key Accounting Procedures and Controls (continued) Eligibility participants eligible for the plan are notified timely and only eligible participants are in the plan and receive distributions (in eligible amounts) Distributions Distribution reports or applications are reviewed and vesting is applied according to the plan document Compensation - compensation used to calculate deferrals and matching contributions is consistent with the definition of compensation in the plan document. 34

35 1 st year audit considerations Typical plan audit process Obtain Plan documentation Plan document, determination letter, etc. Discussion with those charged with governance over the Plan Auditors gain an understanding of KEY accounting and control procedures - walkthrough of the system (contributions/payroll, distributions, etc.) 35

36 1 st year audit considerations Typical plan audit process (continued) Trial balance based on investment statements If multiple custodians, sponsor should compile/combine Contributions Individual participant tests of the employee and employer contribution Payroll information will likely be needed Review of W 3 compared to plan total Review of W-3 compared to plan total contributions received 36

37 1 st year audit considerations Typical plan audit process (continued) Distributions/benefit payments Individual participant tests of the distribution Eligibility Total distributions by participant reconciled to investment statements 37

38 1 st year audit considerations Typical plan audit process (continued) Other Areas Potentially participant confirmations of account balances Participant investment/income allocation Participant loans Expenses Investments t (full scope) Overall tax status of Plan 5500 comparison to financial statements 38

39 Resources Plante and Moran -accounting/employee-benefit-plan- plan audit/403b-audits/pages/home.aspx 403(b) articles Resources Webinar re-play Compliance guideline 39

40 Resources 403(b) Plans Resource Center on AICPA EBPAQC website at 403(b) Primer provides general understanding of 403(b) plans Form 5500 and Independent Audit Requirements provides summary of the 403(b) retirement plan filing and audit requirements Getting Started provides suggested steps plan sponsors and administrators i t can take now to help meet the requirements 40

41 Resources EBPAQC (continued) Questions to Expect from your Plan Auditor provides examples of the types of questions the sponsor might expect from your auditor Sample Auditor Request List for Plan Information provides examples of the types of documents, schedules and information sponsors may need to provide 41

42 Questions? Theresa Banka Carrie Mendoza (248) (248)