1 / 69

EBPAQC 403(b) Plan Audits Live Forum

EBPAQC 403(b) Plan Audits Live Forum. Webinar Troubleshooting Tips Disable all pop-up blockers on your computer You should be able to hear music, if not, you may need to do one of the following: Verify that the volume on your computer is not muted

rashad-adams
Download Presentation

EBPAQC 403(b) Plan Audits Live Forum

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. EBPAQC 403(b) Plan Audits Live Forum Webinar Troubleshooting Tips • Disable all pop-up blockers on your computer • You should be able to hear music, if not, you may need to do one of the following: • Verify that the volume on your computer is not muted • If you are in Windows Media Player, please logout and try Real Player • If you are in Real Player, please logout and try Windows Media Player • Most often any audio or video difficulties are at the local user office so you may need to check with your IT administrator • If you are still having difficulties, please let us know by typing your problem in the question box on the left hand side, and a Genesys representative will assist you

  2. EBPAQC Live Forum 403(b) Plan Audits Update June 10, 2010

  3. Marilee Lau Marilee Lau CPA Bob Lavenberg BDO Seidman LLP Debbie Smith Grant Thornton LLP Tim Desmond O’Connor Davies Munns & Dobbins LLP Lynne McMennamin McGladrey & Pullen LLP Panelists

  4. CPE Credit For Participating • Must have registered for CPE credit prior to this live forum • CPE Credit Approval Form posted on webinar instruction site • Listen for announcement of 4 CPE codes (7 digits: ALL_ _ _ _ ) and 4 polling questions during the live forum • Record CPE Codes on CPE Credit Approval Form (no need to record polling questions) • Return completed form (by fax or mail) to AICPA Service Center for record of attendance • Keep a copy of completed CPE Credit Approval Form for your records

  5. Marilee Lau, CPA Chair EBPAQC Executive Committee Introduction

  6. Available 403(b) plan audit resources General considerations- client acceptance, fees, opening balances, etc. Impact of reporting relief in DOL Field Assistance Bulletins 2009-02 and 2010-01 Impact of DOL Advisory Opinion 2010-10A on reporting certain insurance contracts Initial audit considerations- engagement letter, special audit considerations Financial statements and disclosures Audit reports SAS 115 communications AICPA FAQs on 403(b) Plan Audits Questions and answers Objectives

  7. 403(b) Plan Audit Resources • Previous EBPAQC 403(b) Plan Audits Live Forum- November 6, 2008 • basic understanding of 403(b) plans • similarities to and differences from 401(k) plans • which plans are ERISA-covered • new DOL reporting and audit requirements • implementation issues • initial steps to take EBPAQC members can listen to the archived event and view the presentation materials at the EBPAQC web site. 7

  8. 403(b) Plan Audit Resources • EBPAQC 403(b) Plan Audit Resource Center On the EBPAQC web site • 403(b) Plans Primer • 403(b) Filing and Audit Requirements • 403(b) Getting Started: Meeting the New Form 5500 Reporting and Audit Requirements • 403(b) Questions to Expect from Your Plan Auditor • 403(b) Sample Auditor Request List for Plan Information • 403(b) Retirement Plan Audits-Frequently Asked Questions Share these with your plan clients! 8

  9. 403(b) Plan Audit Resources • AICPA Audit Risk Alert Employee Benefit Plans Industry Developments – 2010 (Audit Risk Alert) • overview of 403(b) plans • pertinent Internal Revenue Service (IRS) regulations • Department of Labor's (DOL) Field Assistance Bulletins related to 403(b) enforcement relief • significant differences between 401(k) plans and 403(b) plans • client acceptance and continuance • engagement letter • initial audit considerations • example audit reports Available at AICPA Store at CPA2Biz.com 9

  10. 403(b) Plan Audit Resources U. S. Department of Labor • DOL EBSA 403(b) Website- http://www.dol.gov/ebsa/403b.html • Employee Benefit Security Administration's (EBSA) toll-free Form 5500 help desk is available from 8:00 am to 8:00 pm, Eastern Time, at 1-866-GO-EFAST (866-463-3278) • Questions concerning the information contained in the Field Assistance Bulletins may be directed to the DOL's Division of Coverage, Reporting and Disclosure at 202-693-8523 • Questions concerning individual plans facing specific transition issues should be directed to EBSA's Office of the Chief Accountant at 202-693-8360 10

  11. 403(b) Plan Audit Resources Internal Revenue Services (IRS) • IRS Web site on IRC 403(b) Tax-Sheltered Annuity Plans at http://www.irs.gov/retirement/article/0,,id=172430,00.html • IRS Publication 571 Tax-Sheltered Annuity Plans (403(b) Plans) (Rev. November 2007) Cat. No. 46581C http://www.irs.gov/pub/irs-pdf/p571.pdfOther IRS Publications: • Pub. 4482, 403(b) Tax-Sheltered Annuity for Participants • Pub. 4483, 403(b) Tax-Sheltered Annuity Plan for Sponsor • Pub. 4484, Choose a retirement plan for employees of tax-exempt and government entities (schools, hospitals, churches, charities) • Pub. 4530, Designated Roth Accounts under a 401(k) or 403(b) Plan • Pub. 4546, 403(b) Plan Checklist • Pub. 4547, Have you had your check-up this year? for 403(b) Retirement Plans 11

  12. General Considerations and DOL Reporting Relief Bob Lavenberg, CPA Partner BDO Seidman LLP Chair AICPA 403(b) Plan Audit Joint Task Force

  13. 403(b) Plan Environment • Universal availability • Vendors • Custodial accounts • 90-24 transfer • Excludable contracts 13

  14. Vendors How many now Any others in the past Internal controls Historical records 90-24 transfers History of Plan Age of Plan Organizational Factors Tone at the top Attitude towards compliance Internal controls Historical records Vendors and vendor selection Dedicated staff – not just how many – but who Budget – internal & external Understanding/attitude about audit opinion Considerations Relating to Client Acceptance, Fees, Opening Balances 14

  15. Field Assistance Bulletin (FAB) 2009-02 • DOL FAB 2009-02 allows the plan administrator to exclude certain pre-January 1, 2009 annuity contracts and custodial accounts for ERISA reporting purposes. Must meet all of these criteria: • the contract or account was issued to a current or former employee before January 1, 2009; • 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; • 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 • the individual owner of the contract is fully vested in the contract or account.

  16. FAB 2009-02 (CONT) • The plan sponsor will need to ensure that the four criteria have been met in order for them to be properly excluded • The FAB allows but does not require that contracts and/or accounts be excluded • Contracts/accounts that do not meet all of the four criteria may not be excluded • Contracts/accounts that are excludable under the FAB may also be excluded from the comparative (2008) financial statements included in the 2009 Form 5500 16

  17. FAB 2009-02 (CONT) • DOL’s expectation is for a “good faith” effort to comply with the ERISA annual reporting requirements • Some vendors will not be in a position to exclude contract or account information that meets the criteria • The FAB applies to both large and small plans • The FAB also applies to years beyond 2009 • Current or former employees with contracts excludable under this relief are not counted as participants Note: This does not change the IRS’s Universal Availability Rule 17

  18. FAB 2009-02- Auditor considerations If plan sponsor elects to exclude certain pre-2009 contracts or accounts… • Need to consider • Effect on completeness of the financial statement presentation • Effect of restrictions on the scope of the audit • Some sponsors may not find a qualified, adverse or disclaimer of opinion acceptable 18

  19. FAB 2009-02- Auditor considerations • Will likely have to issue a modified audit report • Scope limitation • GAAP departure • Or both! • DOL will not reject a 403(b) plan 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 and accounts were not covered by the audit or included in the plan’s financial statements

  20. FAB 2009-02- Auditor considerations • ERISA and DOL regulations require the audit to be performed in accordance with Generally Accepted Auditing Standards (GAAS) – requiring all plan assets to be reported • Need to audit the information that is available • Cannot limit test work because of a scope limitation or because a modified report (disclaimer, adverse, etc.) will be issued Regardless of the type of opinion issued, the auditor is still required to complete all other GAAS audit procedures (e.g.- contributions, distributions, etc.) 20

  21. FAB 2010-01, Annual Reporting and ERISA Coverage for 403(b) Plans • Issued February 17, 2010 • Provides additional guidance in a Frequently Asked Questions (FAQ) format • Confirms that if, as a result of applying FAB 2009-02, the number of eligible participants is below 100, then the plan becomes a small filer • Affirmed that the limited scope exemption is available, but make sure that all requirements are met and that properly certified statements are obtained from all vendors • Acknowledged that the inability of the auditors to obtain sufficient evidence is a restriction on scope of audit, and opinion may be modified accordingly

  22. FAB 2010-01 (CONT) • States that if, as part of the audit the auditor was engaged to perform, the auditor discovers that contracts were incorrectly excluded under DOL FAB 2009-02 from the plan’s financial statements, the DOL expects that the auditor will alert the plan administrator. • Plan administrators have an obligation to take reasonable steps to resolve questions concerning the exclusion of such contracts in their annual report. • If the plan administrator and auditor do not agree with how to resolve issues relating to excluded contracts, the DOL expects these issues to be noted in the audit report.

  23. DOL Advisory Opinion and Initial Audit Considerations Debbie Smith, CPA Partner Grant Thornton LLP

  24. DOL Advisory Opinion (AO) 2010-10A • Issued March 4, 2010- Addresses Traditional Annuities issued by TIAA-CREF • Allocated vs. Unallocated insurance contracts? • DOL concluded the contracts are UNALLOCATED • For plan years beginning on or after 1/1/09 must be reported as plan assets on the Form 5500 • DOL will not reject (or require amended) Form 5500 for plan years ending in 2008 or prior which contain a modified opinion due to exclusion of these contracts from plan assets • What about similar contracts with other insurance companies? 24

  25. Depends on facts and circumstances Financial Statements Could be an error May require restatement of financial statements Modified opinion Reconciliation to the 5500 Form 5500 Will not have to restate or amend Treat the contracts as a transfer in for the 2009 Schedule H DOL Advisory Opinion (AO) 2010-10A-Audit/5500 Considerations

  26. Allocated ContractsEmerging Technical Issues • FASB Definition (FASB Codification Master Glossary)- • A contract in which an insurance entity unconditionally undertakes a legal obligation to provide specified pension benefits to specific individuals in return for a fixed consideration or premium. An annuity contract is irrevocable and involves the transfer of significant risk from the employer to the insurance entity. • Allocated=not recognized as a plan asset Unallocated=recognized as a plan asset • Read insurance contracts and supporting documentation to determine appropriate classification of the contract

  27. Initial Audit Considerations • Engagement letter • Scope of services • Any client-imposed scope restrictions? • Excluded contracts per DOL FAB? • Limited scope audit under 29 CFR 2520.103-8? • Auditor responsibility for prior year (comparative) statement of net assets available for benefits? • Audit, review, compilation? 27

  28. Initial Audit Considerations • Make inquires of the plan administrator and outside service providers, as applicable, regarding the plan’s operations during those earlier years • Obtain relevant information (for example, plan and /or participant level statements, recordkeeping reports, reconciliations, minutes of meetings, and SAS No. 70 reports) for earlier years, as applicable, to determine whether any errors were noted during those years that could have a material effect on current year balances • Gain an understanding of the accounting practices that were followed in prior years to determine that they have been consistently applied in the current year 28

  29. Initial Audit Considerations- Comparative Statements of Net Assets • Comparative statements of net assets available for benefits required by ERISA • Apply procedures that are practicable and reasonable in the circumstances to obtain assurance that the accounting principles used by the plan in the current and the preceding year are consistent • See paragraphs .24–.25 of AU section 420, Consistency of Application of Generally Accepted Accounting Principles (AICPA, Professional Standards, vol. 1), for further guidance 29

  30. Initial Audit Considerations-Risk Assessment Procedures • Need to perform procedures over the completeness and accuracy of participant level information • Assets are not held in “trust” but in individual annuity contracts or custodial accounts rather than in the plan’s name • Risk assessment may need to consider condition of records and internal controls over multiple vendors • Planning the nature, timing, and extent of further audit procedures depends on the outcome of the auditors risk assessment procedures. See paragraph .42 of the 2010 EBP Audit Risk Alert 30

  31. Initial Audit Considerations-Areas of Special Consideration • Completeness of participant data and records • Participant eligibility • Amounts and types of benefits • Eligibility for benefits • Account balances • The nature, timing, and extent of auditing procedures applied by the auditor are a matter of judgment and will vary with factors such as the adequacy of past records, the significance of beginning balances, the complexity of the plan's operations, and controls covered by SAS No. 70 reports. See paragraph 5.90 of AICPA Audit and Accounting Guide Employee Benefit Plans 31

  32. Numerous Audit Risk Factors • Size of plan and number of years in existence • Adequacy and organization of critical plan documents • Incomplete or missing records (participant data, payroll, etc.) • Disaggregation and completeness of recordkeeping information • Identifying all current and former participant accounts to be included as plan assets • “Missing” participants • “Orphan” contracts • Multiple service provider concerns • Adequacy of internal controls • Fiduciary oversight • Availability of SAS No. 70 reports • Monitoring controls • Regulatory compliance matters • Investment valuation and reporting • Fraud risks See paragraph .42 of the 2010 AICPA EBP Audit Risk Alert 32

  33. Typical Compliance Issues • Late deposit of participant deferrals & loan repayments • Failure to properly apply plan’s definition of compensation • Failure to update plan document • Failure to follow plan’s eligibility provisions • Incorrect employer contributions • Failure to properly apply plan’s vesting provisions • Improper use of plan forfeitures • Failure to comply with Form 5500 filing requirements 33

  34. Financial Statements and Disclosures Tim Desmond, Partner O’Connor Davies Munns & Dobbins

  35. 403(b) Financial Statements and Disclosures • 403(b) plans are considered a type of defined contribution plan. • 2010 EBP Audit Risk Alert notes that the financial statements and disclosures would be similar to those described in chapter 3 (and appendix E) of the AICPA Audit and Accounting Guide Employee Benefit Plans. • Comparative Statement of Net Assets Available for Benefits (2009/2008) • Current year Statement of Changes in Net Assets Available for Benefits • Similar disclosures as for a 401(k) plan

  36. 403(b) Financial Statements and Disclosures • 403(b) plans would make all of the appropriate footnote disclosures that apply to 401(k) plans (e.g.- FASB ASC 820 investment fair values, insurance contracts, etc.) • Consideration should be given concerning which disclosures may need to be modified or added. • For example, the general description of the plan, eligibility requirements, funding, and tax status should reflect the requirements of the 403(b) plan document. Note: The IRS has not yet established a process for issuing determination and opinion letters for 403(b) plans • Additional or modified disclosures of the accounting policies surrounding the accounting treatment of certain contracts under DOL FAB 2009-02 may be necessary

  37. “Loans to participants” vs. “Participant loans” Loans to participants are made by the vendor and are secured by the participant’s individual account balance (plan assets) Participant loans are made by the plan Loans to participants are not currently on the plan’s financial statements or the Form 5500 Need to consider additional disclosure in the footnotes of collateralized plan assets DOL is considering additional guidance Stay tuned! 403(b) Financial Statements and Disclosures

  38. Marilee Lau, CPA Auditor Reports

  39. Auditor Reports What type of audit report will be issued? Depends on the auditor’s professional judgment Whether sufficient appropriate audit evidence has been obtained to form an opinion Could be unqualified, qualified, adverse or disclaimer of opinion Authoritative guidance AU section 508, Reports on Audited Financial Statements AU Section 551, Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents

  40. Auditor Reports • Many reports will be disclaimers • Not limited-scope disclaimers as permitted by 29 CFR 2520.103.8 • “Real” disclaimers • Concerns over completeness of reported information • Can excluded contracts that are “excludable” under the FAB be quantified? • Are the “excludable” contracts material to the financial statements • Not auditing their “good faith effort” • Other anticipated scope restrictions (records issues, certified investment information, etc.) 40

  41. Auditor Reports The limited scope audit opinion allowed by the DOL under 29 CFR 2520.103-8 may not be appropriate Opinion on the supplemental schedules would be the same opinion as for the report—reference to compliance with the DOL’s rules and regulations as to form and content would not be appropriate

  42. Auditor Reports Fact Pattern #1 The plan administrator is not able to determine the amount or materiality of the excluded assets due to the lack of records Disclaimer of opinion Example opinions based on specific fact patterns when contracts or accounts are excluded as permitted by DOL FAB 2009-2

  43. Illustrative Auditor Report- Fact Pattern #1- Disclaimer of Opinion [Excerpts – second, third and fourth paragraphs] The Plan has not maintained sufficient accounting records and supporting documents relating to certain annuity and custodial accounts issued to current and former employees prior to January 1, 2009. Accordingly, we were unable to apply auditing procedures sufficiently to determine the extent to which the financial statements may have been affected by these conditions. As described in Note X, the Plan has excluded from investments in the accompanying statement of net assets available for benefits certain annuity and custodial accounts issued to current and former employees prior to January 1, 2009, as permitted by the Department of Labor's Field Assistance Bulletin No. 2009-02, Annual Reporting Requirements for 403(b) Plans. The investment income and distributions related to such accounts have also been excluded in the accompanying statement of changes in net assets available for benefits. The amount of these excluded annuity and custodial accounts and the related income and distributions are not determinable. Accounting principles generally accepted in the United States of America require that these accounts and the related income and distributions be included in the accompanying financial statements. Since we were not able to apply auditing procedures to satisfy ourselves as to the appropriateness and completeness of the Plan's net assets available for benefits and changes in net assets available for benefits as of December 31, 2009 and 2008, and for the year ended December 31, 2009, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion on these accompanying financial statements Source- 2010 AICPA EBP Audit Risk Alert.

  44. Auditor Reports Fact Pattern #2 Plan administrator has elected the limited scope audit exemption and has also elected to exclude certain contracts and accounts. The amounts of the excluded contracts or accounts are determinable and are material. Disclaimer of opinion Example opinions based on specific fact patterns when contracts or accounts are excluded as permitted by DOL FAB 2009-2

  45. Illustrative Auditor Report- Fact Pattern #2- Limited Scope Disclaimer of Opinion [Excerpts – second, third and fourth paragraphs] As permitted by 29 CFR 2520.103-8 of the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974, the plan administrator instructed us not to perform, and we did not perform, any auditing procedures with respect to the information summarized in Note X, which was certified by ABC Bank, the trustee (or custodian) of the Plan, except for comparing such information with the related information included in the financial statements and supplemental schedules. We have been informed by the plan administrator that the trustee (or custodian) holds the Plan's investment assets and executes investment transactions. The plan administrator has obtained a certification from the trustee (or custodian) as of December 31, 2009 and 2008 and for the year ended December 31, 2009, that the information provided to the plan administrator by the trustee (or custodian) is complete and accurate. As described in Note X, the Plan has excluded from investments in the accompanying statement of net assets available for benefits certain annuity and custodial accounts issued to current and former employees prior to January 1, 2009, as permitted by the Department of Labor's Field Assistance Bulletin No. 2009-02, Annual Reporting Requirements for 403(b) Plans. If the identified contracts, as reported by the custodian, were included, net assets available for benefits would increase by approximately $XX and $XX as of December 31, 2009 and 2008, respectively. Further investment income of approximately $XX and distributions of approximately $XX related to such accounts, as identified by the custodian, have also been excluded in the accompanying statement of changes in net assets available for benefits for the year ended December 31, 2009. Accounting principles generally accepted in the United States of America require that these accounts and the related income and distributions be included in the accompanying financial statements. Because of the significance of the information that we did not audit, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion on the accompanying financial statements and supplemental schedules taken as a whole. Source- 2010 AICPA EBP Audit Risk Alert.

  46. Auditor Reports Fact Pattern #3 Amounts of excluded assets are determinable and material to the financial statements Adverse opinion Example opinions based on specific fact patterns when contracts or accounts are excluded as permitted by DOL FAB 2009-2

  47. Illustrative Auditor Report- Fact Pattern #3- Adverse Opinion [Excerpts – third and fourth paragraphs] As described in Note X, the Plan has excluded from investments in the accompanying statement of net assets available for benefits certain annuity and custodial accounts issued to current and former employees prior to January 1, 2009, as permitted by the Department of Labor's Field Assistance Bulletin No. 2009-02, Annual Reporting Requirements for 403(b) Plans. If the identified contracts, as reported by the custodian, were included, net assets available for benefits would increase by approximately $XX and $XX as of December 31, 2009 and 2008, respectively. Further investment income of approximately $XX and distributions of approximately $XX related to such accounts, as identified by the custodian have also been excluded in the accompanying statement of changes in net assets available for benefits for the year ended December 31, 2009. Accounting principles generally accepted in the United States of America require that these accounts and the related income and distributions be included in the accompanying financial statements. In our opinion, because of the effects of the matters discussed in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States of America, the net assets available for benefits of the Plan as of December 31, 2009 and 2008, and the changes in its net assets available for benefits for the year ended December 31, 2009. Source- 2010 AICPA EBP Audit Risk Alert.

  48. SAS 115 Communications and AICPA 403(b) Plan Audit FAQs Lynne McMennamin McGladrey & Pullen, LLP

  49. SAS 115 Communications • Material weaknesses and significant deficiencies? • Oversight of the financial reporting process • Internal control over financial statement preparation and review • Financial statement knowledge • Missing records • Monitoring active/inactive accounts 49

  50. AICPA 403(b) Retirement Plan Audits- Frequently Asked Questions (FAQs) • 12 FAQs issued in March 2010 (EBPAQC EAlert # 200) • FAQs emphasize that ERISA requires plan auditors to follow professional standards and report on whether the plan's financial statements are consistent with generally accepted accounting principles (GAAP), even though the DOL enforcement relief allows plans to exclude contracts and accounts that meet the FAB criteria • FAQs also discuss: • client-imposed audit scope restrictions • initial audit procedures on beginning of year balances • audit procedures applied to comparative statements of net assets available for benefits • insufficient historical records • audit report modifications • plan investment fair value measurement

More Related