Presenting a live 110-minute teleconference with interactive Q&A Employee Benefit Plan Audits: Asking the Right Questions and Avoiding Critical Errors Identifying Underfunded Plans, ESOP Valuation Mistakes, 403(b) Eligibility Issues and Other DOL Hot Buttons MONDAY, NOVEMBER 25, 2013 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Crystal Ekanayake, Partner, Assurance Services, Gallina , Sacramento, Calif. Kriste Naples-DeAngelo, Partner, Pension Services Group, EisnerAmper , Bridgewater, N.J. Jessie Kanter, Manager of Quality Assurance, BlumShapiro , Providence, R.I. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Employee Benefit Plan Audits: Asking the Right Questions and Avoiding Critical Errors November 25, 2013 Kriste Naples-DeAngelo, EisnerAmper Jessie Kanter, BlumShapiro kriste.deangelo@eisneramper.com JKanter@BlumShapiro.com Crystal Ekanayake , GALLINA CEkanayake@gallina.com
Today’s Program High Risk Areas and the Most Common Plan Errors Slide 8 – Slide 22 [Kriste Naples-DeAngelo] Additional Considerations and Best Practices Slide 23 – Slide 33 [Jessie Kanter] We found a mistake, what do we do? Slide 34 – Slide 43 [Crystal Ekanayake]
High Risk Areas and the Most Common Plan Errors Presented by: Kriste Naples-DeAngelo CPA, MBA, CGMA
Opening Thoughts? • Plans Are Seldom Perfect. Noncompliance and errors do occur. • 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. • Auditors’ responsibility is to assess the impact of the compliance failure in the context of the financial statement audit. 9
Focus of Presentation Fiduciary Duties • Exclusive Benefit Rule – to operate the Plan for the exclusive benefit of plan participants and their beneficiaries • Prudent Man Rule - ERISA 404(a)(1)(B) – with care, skill, prudence and diligence • Operate the plan according to the terms of the Plan - Operating outside the governing terms can result in disqualification of the Plan and breach of duty. • Diversified and appropriate investments – to manage the risk of loss of the investments • Reasonable plan expenses 10
High Risk Areas and the Most Common Errors Noted During a Plan Audit • Failure to recognize that the Plan is subject to audit • Misconception with regard to who is responsible for the Plan • Failure to properly apply the Plan’s provisions: • Improper application of definition of compensation • Improper application of plan’s eligibility provisions • Distribution Issues • Loan Issues • Failure to follow participant elections • Paying administrative expenses • Improper use of forfeitures/lack thereof in accordance with the terms of the Plan • Untimely participant deferrals and lack of reconciliation of deferrals to deposits into the Plan 11
High Risk Areas and the Most Common Errors Noted During a Plan Audit Failure to recognize that the plan needs to be audited! • Required by ERISA to be attached to Form 5500 filings with excess of 100 eligible participants (beg. of yr.) • Exemptions from the audit requirement – – General rule - plans with < 100 participants – Plans electing to file as “small plan” under the 80 -120 participant rule • BE CAREFUL- includes ALL ELIGIBLE participants whether participating or not and people that still have account balances 12
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High Risk Areas and the Most Common Errors Noted During a Plan Audit Misconceptions with Regard to Responsibility Generally Plan Sponsor: Generally Service Provider : • • Determines provisions and how to Sets up Plan on recordkeeping operate and/or trust systems based on Plan • provisions and investment options Determines investment policy • including investment options Receives and processes • transactions according to Authorizes transactions instructions from information • Provides accurate and complete received and Plan provisions information (e.g. payroll records) • Maintains Plan and participant • Reviews output (e.g. distribution records reports, trust statements) • Provides output (e.g. distribution • Establishes internal controls for reports, trust statements the Plan • Evaluates service providers 14
High Risk Areas and the Most Common Errors Noted During a Plan Audit Improper Application of Definition of Compensation- #1 • Eligible Plan Compensation is critical for accurately calculating employee deferrals, employer contributions, ADP and ACP testing and benefit accruals • Know the definition of compensation per the Plan document – Initial year - full year for participation or from entry date? – Is it the same for deferrals, match and discretionary contribution- BE CAREFUL? • Verify if it includes bonuses, vacation, overtime, commissions and/or fringe benefits • Ensure that the Plan’s payroll provider has coded wages properly to match the Plan’s provisions and if there are conversions or upgrades with the payroll provider ensure that they are in line with the plan • If errors occur, may need to amend the Plan and make participants whole and correct prior years 15
High Risk Areas and the Most Common Errors Noted During a Plan Audit Improper Application of Plan’s Eligibility Provisions • Missed Entry Date – too late • Entry allowed too early • Time requirements (immediate, 1 month, 1 year) • Entry dates (immediate, 1 st of each month, quarter or year) • Different eligibility provisions for deferrals and employer contribution • Excluding eligible people into the Plan (part time, subcontractors, certain division) • Allowing ineligible people into the Plan (part time people or excluded class or division) 16
High Risk Areas and the Most Common Errors Noted During a Plan Audit Distributions • Has the participant received correct amount? • Any trailing deferrals? • Any trailing earnings allocation? • Make sure participant account goes to zero • Was it timely? • Is the vesting correct? • Acquired a group of employees that may receive credit for prior service • Hardship withdrawal • Do they meet the criteria of the plan document? The process can be outsourced but not the responsibility 17
High Risk Areas and the Most Common Errors Noted During a Plan Audit Participant Loans (Notes Receivable ) • Failure to comply with the loan policy/provisions • Payments are not being withheld and remitted to the Plan • Loan payments are subject to the same requirements as employee contributions • Are loans in default? • Has a 1099 been issued?
High Risk Areas and the Most Common Errors Noted During a Plan Audit Failure to comply with Participant elections • Error in set up of initial participant contribution elections and investment options • Failure to follow change of deferral % and investment option changes • Failure to restart contributions in subsequent year when they met the prior year limit • Failure to set up loan repayments 19
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