webinar slides: common errors in qualified plans
DESCRIPTION
Original air date: Aug. 19, 2014 Repeat broadcast on Aug. 28, 2014. More info at http://www.mhmcpa.com This webinar will focus on the common operational and document failures for qualified retirement plans, including 401(k), 403(b), profit sharing and defined benefit pension plans, and provide practical solutions and alternatives for correcting those mistakes. It will also discuss the importance of having strong internal controls and discuss plan sponsor best practices. Finally, we will discuss how to prepare for an audit if your plan is selected for review.TRANSCRIPT
CBIZ & MHM Executive Education Series™ Common Errors in Qualified Plans
Presented by: Hal Hunt, Cindy Dwyer & Craig Kovarik of Husch Blackwell
August 19, 2014
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Before We Get Started…
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This webinar is eligible for CPE credit. To receive credit, you will need to answer periodic participation markers throughout the webinar.
External participants will receive their CPE certificate via email immediately following the webinar.
CPE Credit
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The information in this Executive Education Series course is a brief summary and may not include all
the details relevant to your situation.
Please contact your service provider to further discuss the impact on your business.
Disclaimer
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Today’s Presenters
Hal Hunt, CPA Shareholder 913.234.1012 | [email protected]
Hal leads MHM’s Employee Benefit Plan (EBP) Audit Practice. With over 25 years of diverse experience with EBP accounting, auditing and compliance issues, he is also a member of the firm’s Professional Standards Group as EBP subject matter expert. As the EBP National Practice Leader, Hal is responsible for providing internal training, along with providing technical support to engagement teams, serving as engagement quality reviewer and developing resource tools for our EBP audit professionals. He served on the AICPA’s Employee Benefit Plan Audit Quality Center (EBPAQC) Executive Committee and is currently a member of the EBPAQC ESOP Task Force.
Cindy Dwyer, CPA Shareholder 913.234.1022 | [email protected] Cindy is the President of MHM Retirement Plan Solutions and a Shareholder of Mayer Hoffman McCann P.C. She supervises staff, oversees technical research, and provides quality control services. She has previously served as the national Chairperson of the American Institute of Certified Public Accountants Employee Benefits Technical Resource Panel (TRP) and currently serves as an advisory member of the TRP. Additionally, Cindy has been a recurring speaker at the American Institute of Certified Public Accountants National Conference on Employee Benefit Plans. Cindy is also a committee member and former chair of the Employee Benefits Institute sponsored by UMKC School of Law.
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Today’s Presenters
Craig Kovarik Partner, Husch Blackwell 816.983.8249 | [email protected] Craig is a partner of Husch Blackwell's Employee Benefits and Executive Compensation Practice Group and counsels clients on complex ERISA, tax and other legal matters. He has significant experience in pension, 401(k), employee stock ownership plans (ESOP) and other qualified retirement plan matters; supplemental retirement, deferred compensation and other nonqualified retirement arrangements; stock options, restricted stock and other equity-based compensation plans and executive employment agreements; and insured and self-insured medical, dental, life and other welfare-benefit plans.
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Today’s Agenda
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Overview and Background Top Ten Failures Found in VCP Other Common Failures What to Expect When You Are Expecting the IRS or DOL How Failures Affect the Annual Plan Audit Internal Controls
OVERVIEW AND BACKGROUND
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Qualified Plans
Defined contribution Account based plans 401(k), profit sharing, 403(b), money purchase pension,
and ESOPs Defined benefit pension Traditional pension plans (e.g., final average pay) Cash balance pension plans
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Non-Qualified Plans
Plans that are not intended to satisfy section 401(a) or 403(b) of the U.S. Internal Revenue Code
Section 409A deferred compensation agreements Section 457(b) and Section 457(f) plans for tax
exempt entities
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Government Regulation
Internal Revenue Service / Department of Treasury Department of Labor Pension Benefit Guaranty Corporation (PBGC) ERISA pre-emption of state laws Church plans and governmental plans
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Internal Revenue Service
“Qualified” plan status Tax favored status Deductible employer contributions Deferred taxation of employee accounts
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IRS Enforcement
IRS Audits Limited IRS reviews (aka compliance check) IRS determination letter program Participants complaints (?)
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What is the #1 best way to comply with the terms of a plan and
operationally avoid most errors?
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Read the plan!
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Mistakes Do Happen
They can almost always be fixed!
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Employee Plans Compliance Resolution System (EPCRS)
General principle: Correct the mistake so that the plan and participants are in the same position they would have been in absent the mistake.
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Employee Plans Compliance Resolution System (EPCRS)
Three component programs SCP: self-correction without IRS involvement VCP: self-correction with IRS approval and compliance
fee CAP: formal closing agreement following audit
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EPCRS – What’s your Choice?
Audit Cap
Voluntary Correction
Self Correction
Cost of Correction
IRS Fees $0
Time Involved
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Employee Plans Compliance Resolution System (EPCRS)
Document failures Inclusion of bad plan provision or absence of required
provisions Failure to timely adopt required plan amendments
Operational failures Failure to follow plan terms Retroactive plan amendment generally prohibited
Demographic failures Fail IRS eligibility or participation requirements
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Employee Plans Compliance Resolution System (EPCRS)
Significant vs. Insignificant Operational Failures Facts and circumstances Number of participants affected Years at issue Dollars at issue
Insignificant errors can be fixed under SCP at any time
Significant errors may be fixed: under SCP during 2-year window period Under VCP at any time
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Employee Plans Compliance Resolution System (EPCRS)
Correction includes “lost earnings” Actual earnings Earnings of plan as a whole Department of Labor earnings calculator Other reasonable method
TOP TEN FAILURES FOUND IN VCP
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Top Ten Failures Found in VCP
#1 Failure to amend the plan for tax law changes by the end of the period required by the law
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Adoption of Plan Amendments
“Plan Document Failure” – plan provision or absence of plan provision that, on its face, violates requirements under Internal Revenue Code
Failure to timely adopt discretionary or required plan amendments Discretionary amendments generally must be adopted no
later than last day of the current plan year Required amendments normally must be adopted no later
than last day of the current plan year unless deadline extended by IRS (remedial amendment period)
Prototype documents
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Adoption of Plan Amendments (continued)
Adoption requires both signature and date Who has authority to adopt amendments (board,
officer, committee?)
Best Practice: Maintain a plan document book (both hard copy and electronic) which includes all plan documents, service contracts, SPDs, and key participant communication document. Review this document annually – like brushing your teeth!
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Top Ten Failures Found in VCP
#2 Failure to follow the plan’s definition of compensation for determining contributions
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Plan Compensation (continued)
IRC Section 401(a)(17) – Limit on includible compensation (e.g. $260,000 for 2014)
IRS Section 401(c)(2) – Definition of earned income for self-employed persons
IRC Section 404(a)(12) – Definition for deductions IRS Section 414(q)(4) – Definition for determining HCEs IRC Section 414(s) – Definition for nondiscrimination testing IRC Section 414(u) – For veteran’s reemployment privileges IRC Section 415 – Maximum annual additions and benefits IRC Section 416 – Top heavy allocations
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Plan Compensation (continued)
Safe Harbor definitions Non-safe harbor definition: Subject to
nondiscrimination testing Plan’s definition may not discriminate in favor of HCEs Compare average percentages of non-HCEs and HCEs
(plan definition divided by safe harbor definition) Average for each group and compare De minimis rule
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Plan Compensation (continued)
Common Mistakes 1.Failure to follow plan’s definition of compensation
(e.g., treatment of stock option gains, imputed life insurance income, manual or off cycle paychecks)
2.Include (exclude) compensation from plan entry 3.Treatment of severance pay 4.Self-employment earnings 5.IRC 401(a)(17) limit – elective deferrals from pay in
excess of limit 6.Failure to coordinate HR and Payroll systems
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Top Ten Failures Found in VCP
#3 Failure to include eligible employees in the plan or the failure to exclude ineligible employees from the plan
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Eligibility and Enrollment
Entry date issues (monthly, quarterly, semi-annually) Auto-enrollment and auto escalation Employment anniversary vs. fixed annual date for all
employees Employees paid on different payroll basis (weekly vs. bi-
weekly) Employee contribution elections How do you document employee initial elections? How do you document changes in employee elections? What happens if error is made but employee does not call this
your attention for many months or years?
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Definition of “Eligible Employee”
Part-time employees Leased employees Student interns Temporary employees Employees of brother-sister companies or
subsidiaries
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Treatment of Rehires
General rule: Once an employee satisfies the requirements for participation, the employee cannot be required to re-satisfy the eligibility requirements Key Concept: Once a participant, always a participant
Rehired employee should be allowed to restart participation effective on his or her date of hire (i.e., not the next Plan entry date unless Plan specifically provides otherwise)
Best Practice: Establish internal policy for handling rehires. Remember, your rehire policy for other employment purposes will likely be different from your policy for your retirement plan.
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Top Ten Failures Found in VCP
#4 Failure to satisfy plan loan provisions
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Participant loans don't conform to the requirements of the plan document and IRC Section 72(p).
General Requirements
Limited to 5 years (exception for residential loans) Reasonable interest rate Meet dollar limit of IRC 72(p) Amortized in level payments of principal and interest at least
quarterly
Plan Loans
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Exceptions for leave of absences May suspend repayments for up to one year while the
participant is on a leave of absence. May not extend the loan’s maximum repayment period. Upon return from leave of absence, must make additional
payments to ensure repayment within the five-year-period by either: increasing the payments over the rest of the loan, or keeping the payments the same, but making a catch up payment for
the missed payments during the leave of absence. Note: A plan may suspend loan payments for more than one
year for an employee performing military service. In this case, the employee must repay the loan within five years from the date of the loan, plus the period of military service.
Plan Loans
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The plan administrator may allow for a “cure period” that would allow a participant to make up for a missed payment. The cure period cannot go beyond the end of the second quarter following the quarter in which the missed payment was due.
If the loan violated the plan document terms or IRC Section 72(p), the plan sponsor has two choices. It may be able to: Correct under VCP by requesting the amount of the loan to be taxed
in the year of correction request relief from reporting the loans as taxable distributions to
participants from the IRS under the VCP
Plan Loans
NOTE! Self-correction is not an option for this error.
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Top Ten Failures Found in VCP
#5 Impermissible in-service withdrawals.
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In-Service distributions – other than hardship Common to have at age 59 ½ for all sources Certain sources may be available prior to age 59 1/2 Prior to age 59 ½ not available for:
401(k) Safe Harbor Qualified Non-Elective Source
Pre-Retirement Distribution
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Hardship distributions were not properly made Reasons for failures Plan does not allow hardships Hardship made from ineligible source Neglected record keeping
Immediate and heavy financial need
Hardship Distributions
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Reasons for failures (cont’d)
Watch for abuse/bad management Identical requests from multiple employees Only highly-compensated employees make requests Have rank-and-file been notified of this plan feature?
Electronic Hardship applications
Hardship Distributions
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Finding the mistake Review plan – ensure it allows hardships Review hardship procedures Review all hardship distributions
Ensure each one was completed according to the plan
Hardship Distributions
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Fixing the mistake Plan document does not allow for hardships
Retroactive amendment Hardships do not meet plan terms or IRC rules
Possible repayment to plan
Hardship Distributions
Hardship distributions may be subject to the 10% early distribution tax on distributions
made prior to reaching age 59 ½.
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Top Ten Failures Found in VCP
#6 Failure to satisfy age 70 1/2 minimum distribution rules.
50% Excise tax SCP – need to make the distribution VCP– need to make the distribution and used to
request Excise tax waiver
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Top Ten Failures Found in VCP
#7 Employer eligibility failure
Employer adopts a plan that it legally is not permitted to adopt
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Top Ten Failures Found in VCP
#8 Failure to pass the ADP/ACP nondiscrimination tests under IRC 401(k) and 401(m)
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ADP/ACP was not corrected timely ADP and ACP tests reasons for failures Not running the tests Misclassification of employees
Highly and non-highly compensated Ownership attribution rules
Not including all eligible employees in the test (non participating)
Definition of compensation Not understanding who the “employer” is
ADP/ACP Nondiscrimination Testing
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Two methods to correct- when corrected late Qualified non-elective contributions (QNEC) One-on-one method (still requires a refund to HCEs)
Correction Within 12 months following plan year end – OK Otherwise, correct using EPCRS
ADP/ACP Nondiscrimination Testing
12/31/13
03/15/14 To avoid excise
tax 12/31/14
Self Correction Period
12/31/16
Must use VCP for correction
QNEC or refund with one-on-one method required
QNEC or Refund
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Top Ten Failures Found in VCP
#9 Failure to properly provide the minimum top-heavy benefit or contribution under IRC 416 to non-key employees
Corrective contribution Vesting correction
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Top Ten Failures Found in VCP
#10 Failure to satisfy the limits of IRC 415
#10 Failure to satisfy the limits of IRC 415
Not as common as once was Lesser of 100% of Compensation or $52,000 (2014 indexed)
OTHER COMMON FAILURES
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Other Common Failures
Deduction of incorrect amounts (e.g., payroll system does not align with plan’s definition of compensation)
Failure to withhold from irregular payroll checks Failure to deduct from discretionary or one-time
bonuses Failure to implement an employee’s election to
change his or her deferral amount IRS general correction principle Employer must contribute one-half of the lost deferral
opportunity
Employee Contributions
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Employee Contributions (continued)
Deductions from “regular pay” after severance from employment 2½ month rule Payment is regular compensation for services Payment would have been paid to employee prior
severance from employment if the employee had continued in employment
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Employee Contributions (continued)
Deductions from leave cash outs and deferred compensation 2½ month rule Accrued sick leave, vacation or other leave
Deductions from “other post-severance payments” All other amounts excluded even if paid within 2½ months For example, severance pay is not eligible
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Employee Contributions (continued)
Termination is year 1 but paid in year 2 Include if satisfy the definition of compensation and paid
within the 2½ month period? Exclude because individual is not an “eligible employee”
in year 2? Timely correction of excess contributions and excess
aggregate contributions
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Other Common Failures
DOL Rules and Regulations Earliest date contributions can be segregated from general assets, but No later than the 15th business day of the month following the month in
which the contribution is withheld
15th business day is not a safe harbor! Small plan safe harbor of 7 business days is not a safe harbor
for large plans Rules apply equally to participant contributions made to defined
benefit and health and welfare plans H&W plans look to 90 days
If participant loans are processed through payroll same rules apply
Timely Deposit of Elective Deferrals
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Voluntary Fiduciary Correction Program – it’s easy to use Fact Sheet can be found at:
http://www.dol.gov/ebsa/faqs/faq_vfcp.html#section2 VFCP Model application form:
http://www.dol.gov/ebsa/calculator/2006vfcpapplication.html Prepare VFCP Checklist:
http://www.dol.gov/ebsa/calculator/2006vfcpchecklist.html Calculate the lost earnings on the late deposits and allocate them back
to the participants. Online calculator: http://askebsa.dol.gov/VFCPCalculator/WebCalculator.aspx) or by using the returns on the actual funds, which ever is higher
Timely Deposit of Elective Deferrals
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Excise Tax 15% for the prohibited transaction and File
Form 5330 OR May qualify for relief from the excise tax and no Form
5330 is required Late deposits were transmitted not more than 180 days from when
withheld The Employer has NOT taken advantage of the VFCP program
during the 3 years prior to the submission Must send a notice to the participants within 60 days of filing the
VFPC – model notice – However waived if: Excise tax is $100 or less, The “excise tax” is paid to the plan, Form 5330 or detailed computation provided to DOL
Timely Deposit of Elective Deferrals
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Online calculator and display of IRS rates and factors on EBSA website.
Model Application Form available on EBSA website. Includes online compliance assistance tools and
reduced documentation requirements.
DOL Audit
VFCP is Easy to Use
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Calculation of match using wrong definition of compensation (e.g., exclude bonus)
Failure to follow plan’s matching formula Calculation of match on payroll by payroll basis vs. calendar
year basis Employer’s practice is not consistent with the plan document For example, employees who stop and restart contributions during the
year
Failure to make year-end true-up match Making true-up contributions for those employees who max
out during the year but not others
Other Common Failures
Employer Matching Contributions
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Other Common Failures
Failure to track hours of service Two method to credit hours: (1) hours method or (2)
elapsed time method Hours method Actual hours worked Equivalency method (9 hours per day, 45 hours per
week or 190 hours per month)
Vesting Issues
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Vesting for Rehires
Once vested, always vested Never lose credit for prior of service Example: Employee has 2 yrs. of vesting service at
termination and is rehired: employee will have 2 yrs. of vesting service
Break in service rules If 5-year break in service, future service will not be taken
into account for purposes of determining old account benefit; however, old service counts for future benefit
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Vesting for Rehires (continued)
5-year break in service If employee has a 5-year break in service, future service
will not be taken into account for purposes of determining old account benefit
However, old pre-break service counts for future benefit
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Vesting for Rehires (continued)
Forfeiture of non-vested account balance Earlier of: 5-year break in service or distribution of
participant’s vested balance Upon rehire, employee has 5 year period to repay
prior account balance and have forfeited balance restored Does plan administrator have obligation to notify
employee at the time of rehire?
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Other Common Failures
100% vesting required upon plan termination Complete termination vs. partial termination Partial termination Semi-bright line test: 20% reduction in workforce Multiple plan yrs. Multiple transactions Formula for determining 20% reduction
Partial Plan Termination
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Other Common Failures
Failure to maintain historical records (yrs. of service, eligible compensation)
Changes in third party record keepers Overpayment of pension benefits due to
administrative errors Retention of plan documents is critical
Calculation of Pension Benefit
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Other Common Failures
Distributions upon attainment of Normal Retirement Age Participant consent required until later of:
Participant’s attainment of normal retirement age Termination of employment Participant’s completion of 10 yrs. of participation
Lost participants Immediate vs. deferred distribution IRA rollovers
Minimum required distributions (age 70½) Hardship withdrawals
Distribution of Plan Benefits
WHAT TO EXPECT WHEN YOU ARE EXPECTING
–The IRS (or DOL)
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Audit Triggers
List various audit triggers Late deposits reported on 5500 No Fidelity bond ER Securities – value NOT changing Lots of $ in “other”
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Plan document Trust agreement Summary plan description Summary annual report Form 5500 for the last 3 years IRS qualification letter Fidelity bond
DOL Audit
What to Expect During an IRS Audit
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Identity of the fiduciaries Service provider contracts Plan’s written investment policies Fiduciary liability policy Payroll records, ledgers, journals, cancelled checks
DOL Audit
Other Information
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What to Expect during a DOL Audit
Employee Benefit Security Administration (EBSA) Fiduciary responsibilities Prohibited transactions Civil and criminal enforcement
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Sample Request Letter
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Sample Document and Information Request
• Signed plan documents • Signed amendments • Signed trust agreements, if applicable • Summary Plan Description • Summary of Material Modifications • Loan policy document • Most recent IRS Determination Letter • IRS Form 5500 series , including all schedules– last three years • 5310 filings for prior plan mergers, consolidations, or spin-offs, for prior five years • Audited financial statements • Plan’s payroll records/contribution reports • Plan’s financial records (trust reports, bank account statements, allocation records)
The examiner will need copies of the items identified below and, in addition, may request copies of other information reviewed. It should be noted that additional
records might be requested following a review of these items.
• Loan records • Latest fidelity bond • Individual benefit statements that have been
issued to two participants • Copy of latest fiduciary liability policy • Most recent participant allocation statements • Most recent Summary Annual Report • Participant Loan Promissory Notes • Any / all corrective actions/ government filings • Collective bargaining agreements relating to plan
participation • Investment due diligence materials • Signed service provider contracts and all invoices
and billing statements
HOW FAILURES AFFECT THE ANNUAL PLAN AUDIT
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No plan is perfect. Noncompliance happens. Plan administrator is responsible for plan’s tax
qualified status. Plan management is responsible for maintaining
compliance of the plan which includes processes performed by third party service providers.
Auditor’s responsibility is to assess the impact of the compliance violation in the context of the financial statement audit.
Responsibilities
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Lack of understanding of plan provisions Complex plan terms & definitions (i.e. compensation) Dramatic shift in number of individually designed plans
to prototype plans Pressure on service providers to control costs Acquisitions and dispositions (personnel & benefits) TURNOVER – staff at plan sponsor or at service
provider Failure to consult legal counsel Ineffective internal control
Root Causes of Operational Violations
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Process to monitor new legislation and impact on plan document and operations. Typically engage ERISA counsel to monitor law changes and draft required amendments to the plan.
Process to timely receive required amendments to a prototype document. Process to ensure that amendments are timely executed.
Maintenance of signed and dated copies of plan document and any amendments.
Review of plan document and Summary Plan Description (SPD) to ensure that terms match.
Plan Sponsors – Best Practices
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Audit Implications
Errors could result in a material impact on the financial statements
Determination of error and correction; can be very time consuming and costly
Impact on timely completion of the audit
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Nonexempt Transaction – Note Example
(10) Nonexempt Transactions Certain employee contributions and participant loan
repayments were not remitted to the trust within the time frame specified by the Department of Labor’s Regulation 29 CFR 2510.3-102, thus constituting nonexempt transactions between the Plan and the Company for the year ended December 31, 20X3. Plan management corrected the deposits including lost interest on September 20X4.
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Supplemental Schedule - Example
Schedule 1ABC COMPANY 401(k) SAVINGS PLAN
EIN: 99-XXXXXXXPlan Number: XXX
Schedule H, Line 4a – Schedule of Delinquent Participant Contributions
Year ended December 31, 20X3
Participant contributions Total that constitute nonexempttransferred late to Plan prohibited transactions Total fully
Check here if late Contributions correctedparticipant loan Contributions Contributions pending underrepayments are not corrected correction in VFCP and
included: X corrected outside VFCP VFCP PTE 2002-51
$
See accompanying independent auditors’ report.
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Noncompliance – Impact on the Audit
If we become aware of information concerning an instance of noncompliance or suspected noncompliance with laws and regulations, we should obtain: An understanding of the nature of the act and the
circumstances in which it has occurred and Further information to evaluate the possible effect on the
financial statements. Discuss with management and, when
appropriate, those charged with governance Evaluate implications of noncompliance in
relation to other aspects of the audit Auditor’s risk assessment Reliability of written representation
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Determine if there is a related internal control deficiency. Severity of the deficiency Impact on the audit
Consider the following in communication with those charged with governance: Compliance failure
Description of the related internal control deficiency Description of the potential impact on the financial statements and
level of deficiency Deficiency/Significant Deficiency/Material Weakness
Uncorrected misstatements Corrected misstatements
Noncompliance – Control Deficiency
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Noncompliance – Written Representation From Management
Consider the following in the representation from Plan management: Description of management’s understanding of the
operational failure Description and status of the correction/intended correction Status of consultation with ERISA legal counsel Assessment of the materiality of any unrecorded
adjustments to the financial statements
“We are aware of certain operational, plan document, or demographic issues that, if not properly corrected, could be treated by the IRS as
qualification failures. We will be taking steps to correct these issues. If necessary, the tax qualification issues will be resolved directly with the IRS.
Accordingly, we believe that the plan will retain its tax-qualified status.”
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Noncompliance – Note Disclosures
Management to consider the following additional note disclosures: Description of the operational failure Description and status of the correction/intended
correction Management’s assessment of- Impact on the plan financial statements Impact on the plan’s tax status
INTERNAL CONTROLS
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Fiduciary obligations Effective controls
reduce the risk of asset loss help ensure that plan information is complete and accurate financial statements are reliable laws and regulations are complied with
Protections to plan Minimizes opportunities or unintentional errors or intentional
fraud Helps discover small errors before they become big problems
Why Internal Controls are Important to Your Plan
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Internal control is a process General characteristics: Policies and procedures that provide for appropriate
segregation of duties to reduce the likelihood that deliberate fraud can occur
Personnel qualified to perform their assigned responsibilities Sound practices to be followed by personnel in performing
their duties and functions A system that ensures proper authorization and recordation
procedures for financial transactions
What is Internal Control?
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Determine your plan’s control objectives over: Investments Contributions Benefits (distributions or other withdrawals) Participant data (eligibility, benefit accumulation, vesting) Participant loans Administrative expenses Record retention
Establish, document and communicate your internal controls
How to Establish Cost-Effective Controls
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Internal control is only effective when properly designed and operating as intended—important to monitor over time
Activities should address: Are internal controls in place and operating? Is the system working as designed? Are exceptions and problems identified and resolved
promptly? Are the controls periodically reviewed?
Monitoring Your Controls is Critical
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Communication in writing is required “significant deficiencies” “material weaknesses”
Examples Lack of segregation of duties Lack of internal expertise Insufficient monitoring of activities of third-party
administrators/custodians Material misstatements in accounting records
Auditor’s are Required to Communicate Internal Control Deficiencies
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It starts with audit planning. Your plan auditor may review your benefit plan’s internal
controls and identify best practices and areas for improvement.
Specific Examples: Assist with financial statement preparation and footnote
disclosures Offer advice on technical issues Provide research materials Make recommendations
How Your Plan Auditor can Help You
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Examples of Selected Internal Controls
Loans receivable from plan participants and related interest income are properly reported Loans are made only with proper authorization based on guidelines
established in the plan instrument in conformance with ERISA and tax requirements.
Entries to detailed loan records are reconciled with cash disbursements and receipts records.
Interest income is periodically calculated in accordance with rates established in the plan instrument and properly accrued.
Detailed records maintained by third-party administrator are reconciled with trustee’s/asset custodian’s reports.
Records are periodically reviewed for past-due amounts.
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Access to cash receipts, cash receipts records, and contribution records is suitably controlled to prevent or detect within a timely period the interception of unrecorded cash receipts or the abstraction of recorded cash receipts. Cash is independently controlled upon receipt. Cash receipts are deposited intact daily. Checks are restrictively endorsed upon receipt.
Examples of Selected Internal Controls
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Access to cash receipts, cash receipts records, and contribution records is suitably controlled to prevent or detect within a timely period the interception of unrecorded cash receipts or the abstraction of recorded cash receipts.(Cont.) Responsibility for receiving and processing contributions is
adequately segregated.
Bank accounts are reconciled monthly.
Past-due contributions are investigated on a timely basis.
Access to computerized contribution records is limited to those with a logical need for such access.
Examples of Selected Internal Controls
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Contributions are recorded at the appropriate amount and in the appropriate period on a timely basis. Sponsor or employer payroll records are compared with
contribution calculations. In the case of multi-employer plans, some form of periodic payroll audit is performed.
Initial controls are established over contribution records for both employer and participant contributions (e.g., salary reduction amounts, after tax and rollovers).
Clerical accuracy of contribution forms is checked.
Subsidiary contribution records are reconciled to the trustee/asset custodian or third-party administrator reports.
Examples of Selected Internal Controls
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Contributions are recorded at the appropriate amount and in the appropriate period on a timely basis. (Cont.) Contribution forms are reconciled to cash receipts ledger and bank
deposits.
Control totals for participant and employer contributions are maintained.
Contribution receipts are issued to participants containing notices requesting reviews of discrepancies.
Participant contributions are remitted to the trust within guidelines prescribed by Department of Labor regulation.
Examples of Selected Internal Controls
RESOURCES
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Where to Get More Help
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http://www.irs.gov/Retirement
Resources
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Resources
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Resources
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http://www.dol.gov/ebsa/compliance_assistance.html#section3
Resources
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Questions?
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Join us for these courses: 10/9 & 10/21: ERISA Plan Internal Controls and Your Fiduciary
Responsibilities 12/9 & 12/17: Understanding Your Employee Benefit Plan’s
Investments
Read these related publications: Whitepaper: Plan Sponsor's Guide to Retirement Plan
Investments Employee Stock Ownership Plan Primer
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