Driving the 5500 Highway: A Roadmap to 403(b) Success March 21, 2012 MOSS ADAMS LLP | 1
The material appearing in this presentation is for informational purposes only and is not legal or accounting advice. Communication of this information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although these materials may have been prepared by professionals, they should not be used as a substitute for professional services. If legal, accounting, or other professional advice is required, the services of a professional should be sought. MOSS ADAMS LLP | 2
PRESENTERS Catrina Blackwell Partner, Employee Benefit Plan Services Moss Adams LLP Gina Gurgiolo, JD, LLM Director, Technical Services Multnomah Group MOSS ADAMS LLP | 3
TODAY’S AGENDA Typical audit findings and how to avoid them • Best practices for audit preparation • New financial statement disclosures • 2011 changes to the Form 5500 • Schedule C and its relationship to the final fee • disclosure regulations; and A “roadmap” to Form 5500 preparation success • MOSS ADAMS LLP | 4
TYPICAL AUDIT FINDINGS AND HOW TO AVOID THEM MOSS ADAMS LLP | 5
TYPICAL AUDIT FINDINGS • Inadequate oversight of service providers • Deficiencies in internal controls • Timeliness of contributions • Limited understanding of investments MOSS ADAMS LLP | 6
OVERSIGHT OF PLAN SERVICE PROVIDERS Frequently reconcile service provider reports to employer records o Contributions per trust statement to payroll records Distributions per trust statement to detail listing or approval logs Investments per trust statement to Form 5500 draft Review for overall reasonableness based on what has occurred during the year (investment performance, layoffs, mergers, etc.) Read service provider SSAE 16 for deficiencies o that may affect the Plan Check that actual fees charged are in accordance o with agreements Follow up on participant complaints o MOSS ADAMS LLP | 7
VALUE OF INTERNAL CONTROLS • They drive attainment of strategic business objectives • They prevent fraud • They target and mitigate risk • They help design processes with proper checks and balances MOSS ADAMS LLP | 8
STRONG CONTROLS ARE IMPORTANT • Need to ensure the plan information is complete and accurate – Participant enrollments – Dividends are timely and accurate – Plan assets are safeguarded – Participant access to data is property authorized and secured – Annual plan level financial statements are complete, accurate and timely MOSS ADAMS LLP | 9
PREVENTIVE CONTROLS • Controls designed to prevent errors o designed to deter problems before they arise o mostly focused on authorization and input controls • Examples of preventive controls o hire qualified personnel o segregate duties (deterrent factor) o control access to data o use well-designed documents (prevent errors) o establish suitable procedures for authorization of transactions MOSS ADAMS LLP | 10
DETECTIVE CONTROLS • Controls designed to detect errors o designed to detect problems soon after they arise o mostly focused on reconciliation and review • Examples of detective controls : o reconciliations of contributions, distributions, enrollment numbers to employer records o spot checking risky areas o duplicate checking of calculations MOSS ADAMS LLP | 11
SSAE 16 REPORTS • Report on controls at the TPA/Custodian – Detailed description of controls – Independent assessment of whether controls are suitably designed and placed in operation • Type 2 report gives assurance that the controls are in place and are operating effectively • User control considerations – a must read for plan management MOSS ADAMS LLP | 12
INTERNAL CONTROL FINDINGS COMMON TO BENEFIT PLANS • Entity level controls o No plan committee designated by board of directors o No plan minutes taken of plan committee actions o No investment policy statement o Not in compliance with plan document Wrong definition of plan compensation All eligible employees are not participating in plan These controls deal with the basic objectives of the plan, including monitoring performance and safeguarding of assets and also deal with complying with laws and regulations to which the plan is subject (Operational and compliance goals) MOSS ADAMS LLP | 13
INTERNAL CONTROL FINDINGS COMMON TO BENEFIT PLANS - cont . • No controls over the plan’s financial reporting process o No reconciliation performed between participant account details and custodian reports o No reconciliation between payroll deferrals and amounts reported on participant account details. • Lack of documentation of controls surrounding payroll and HR processes These controls deal with the basic objectives of the financial close and report process of the plan, including completeness of data and disclosures MOSS ADAMS LLP | 14
INTERNAL CONTROL FINDINGS COMMON TO BENEFIT PLANS - cont . • No controls in place over payroll and HR processes o No independent review of data input to verify accuracy of data input in payroll o No documentation of who initiated changes made to participant data o No independent review of data changes to employee data in payroll system or recordkeeper system • Lack of segregation of duties MOSS ADAMS LLP | 15
OTHER TYPICAL AUDIT FINDINGS • Timeliness of contributions o Prohibited transaction o DOL hot button • Limited understanding of plan investments o Annuities o Guaranteed investment funds/accounts o Mutual funds MOSS ADAMS LLP | 16
BEST PRACTICES FOR AUDIT PREPARATION MOSS ADAMS LLP | 17
BEST PRACTICES GETTING READY FOR THE AUDIT • Prepare early o Prior year problems o Review prior year report and update o Understand any changes (FS and audit standards) • Use timeline o Due date in mind o Regular updates o Information available drives realistic due dates MOSS ADAMS LLP | 18
BEST PRACTICES GETTING READY FOR THE AUDIT – cont . • Point Person o Internal o Audit firm • Use document request list o Assign tasks to appropriate parties Names and dates due Edit when dates are not met MOSS ADAMS LLP | 19
RECENT ACCOUNTING DISCLOSURES MOSS ADAMS LLP | 20
RECENT ACCOUNTING STANDARDS UPDATES (ASU) • ASU 2010-25 – Reporting loans to participants in defined contribution plans o No longer an investment for financial statement presentation Record as notes receivable from participants Fair value disclosures not applicable o Still an investment for ERISA purposes Recorded as an investment on schedule H of form 5500 Can still be certified o Effective for 2010 and must be retrospectively applied to all prior periods presented MOSS ADAMS LLP | 21
RECENT ACCOUNTING STANDARDS UPDATES (ASU) – cont. • ASU 2010-06 (Improving Disclosures about Fair Value Measurements) o Fair values must be disclosed by class o Expanded disclosure of Level 3 activity. Separately present gross purchases, sales, issuances, and settlements in reconciliation. o Separately disclose significant transfers into & out of Level 1 and Level 2 and reasons for transfers – not expecting a lot of disclosure here. o Disclose information about inputs and valuation techniques used in Level 2 and Level 3 measurements. o Effective for reporting periods beginning after 12/15/2009. o Level 3 disaggregation required for years beginning after 12/15/2010 & interim periods within those years. MOSS ADAMS LLP | 22
OTHER • New audit guide came out fall 2011… o 1991 last revision o Many more disclosure examples provided o Master trust – must now disclose full statement of net assets in FS notes – example will be in new audit guide o Enhanced disclosures of greater than 5% for undivided interests and specific interests(divided interests) in master trusts and non-participant directed investments o Corrective distributions – net with contributions and add accounting policy o Disclosures of fee arrangements o Plan mergers – show transfers in/out after change in net assets o DB plan – no requirement to agree to Schedule SB – must now meet standard receivable requirements MOSS ADAMS LLP | 23
2011 FORM 5500 CHANGES • Form 8955-SSA: reports participants with deferred vested benefits. With EFAST2 and public disclosure rooms, Schedule SSA was removed from Form 5500 Series so as not – to disclose SSNs publicly. New Form 8955-SSA was not ready in time for 2009 or 2010 filing years. – Form 8955-SSA due for 2009 and 2010 by Jan 17, 2012 or otherwise applicable filing deadline. – For 2011 filing year and beyond, Form 8955-SSA must be filed by Form 5500 deadline for subsequent – years. Due 7 months from end of plan year, with 2.5 month automatic extension option via Form 5558. • Form 5558 has been revised to allow election for extension of time to file Form 8955-SSA. • File Form 8955-SSA electronically. – 24
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