Accounting for Employee Benefit Plans - Cindy Lusk

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Accounting for Employee Benefit Plans - Cindy Lusk

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Accounting for Employee Benefit Plans - Cindy Lusk

  1. 1. A Global Reach with a Local Perspective www.decosimo.com Accounting for Employee Benefit Plans Cindy Lusk, CPA, RPA | Assurance Manager July 2014
  2. 2.  Large plans  100 participants, as of beginning of plan year  80/120 rule  Certain plans are exempt  Funded by premiums paid by employer  Allocated insurance contracts See 5500 instructions for more information. Plan Audit Requirements
  3. 3. Usually include:  Determination of eligibility and enrollment  Providing timely and accurate date of birth, hire and termination to the recordkeeper  Remittance of contributions and loan repayments  Setup of loan repayments  Changes in deferral rates  Discontinuance of participant contributions  Distribution of required plan notices Plan Sponsor Responsibilities
  4. 4. The Department of Labor has a Reporting and Disclosure Guide for Employee Benefit Plans that is available on their website. http://www.dol.gov/ebsa/pdf/rdguide.pdf. Reporting and Disclosure Requirements
  5. 5. Major components of plan financial statements include:  Investments  Investment income  Contributions  Distributions Plan Financial Statement Components
  6. 6.  Certified trust statements  Assets may be excluded from certification Investments
  7. 7. Certified Investments Excerpt from AICPA’s Audit and Accounting Guide for Employee Benefit Plans:
  8. 8. Statement on Standards for Attestation Engagements No. 16, Reporting on Controls at a Service Organization  User or entity control considerations  Services carved out SOC 1 Reports
  9. 9.  Payroll reports  Certified trust statements  Reports from recordkeeper  Form 5500 Reconciliations
  10. 10.  Eligibility for participation  Definition of compensation  Common errors  Timely remittance  True-up provisions  Example of match 401(k) Plan Fix-It Guide: http://www.irs.gov/pub/irs- tege/401k_mistakes.pdf Contributions
  11. 11. Example of employer match
  12. 12.  The Department of Labor requires plan sponsors to deposit deferrals to the plan as soon as the funds can be segregated; however, in no event later than the 15th business day of the following month.  The 15th business day isn’t a safe harbor!  If you have a small plan, the DOL provides a 7 business day safe harbor rule for employee contributions to small plans (fewer than 100 participants). There is no safe harbor for large plans. Timely Remittance of Contributions
  13. 13.  Consult Rev. Proc. 2013-12 to determine if the error may be corrected under either the Self Correction Program (SCP) or Voluntary Fiduciary Correction Program (VFCP). Available at: http://www.irs.gov/pub/irs-drop/rp-13-12.pdf  Note that there are fees associated with correction under VFCP  Correction typically includes remitting the contributions with lost earnings.  A lost earnings calculator is available at: http://askebsa.dol.gov/VFCPCalculator/WebCalculator.as px  Correction may also require Form 5330 to be filed with an excise tax payment Prohibited Transactions
  14. 14.  Accurate census information  Vesting  Forfeitures  Types of distributions  Hardship distributions  Outstanding checks  Partial plan terminations Distributions
  15. 15.  The distribution is not greater than the amount of the immediate and heavy financial need, including the amounts necessary to pay any taxes resulting from the distribution;  The employee has obtained all other distributions and loans available under the employer’s plans; and  The employee is not allowed to make elective deferrals to the plan for at least six months after a hardship distribution. IRS Safe Harbor for Hardship Distributions
  16. 16.  Definition of plan compensation  Eligibility requirements  Plan entry dates  Vesting provisions  Types of employer contributions, required or allowed  Permitted types of distributions and loans Review Key Plan Provisions
  17. 17.  Plan operational failures  Consult Rev. Proc. 2013-12 to determine if the error may be corrected under either the Self Correction Program (SCP) or Voluntary Fiduciary Correction Program (VFCP). A copy of the revenue procedure is available at: http://www.irs.gov/pub/irs-drop/rp-13- 12.pdf  Consider consulting an ERISA attorney  Fidelity bond  Requirements  Fidelity bond versus fiduciary liability insurance Other Items to Note
  18. 18.  Field Assistance Bulletin No. 2008-04 provides additional guidance on ERISA Fidelity Bonding Requirements  Available at: http://www.dol.gov/ebsa/regs/fab2008- 4.html Fidelity Bond Requirements
  19. 19.  Basis of accounting  Creation of a trial balance  Adjusting entries Plan Trial Balance
  20. 20. Excerpt from AICPA’s Audit and Accounting Guide for Employee Benefit Plans (Auditor’s Report): Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Responsibility for Plan Financial Statements
  21. 21.  Comparative statement of net assets  Statement of changes in net assets  Notes to the financial statements  Applicable supplemental schedules required by ERISA and the Department of Labor Financial Statements for DC Plans
  22. 22. Type of Audit:  Limited Scope  Full Scope Auditor’s Report
  23. 23. Limited Scope Auditor’s Report Excerpt Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on conducting the audit in accordance with auditing standards generally accepted in the United States of America. Because of the matters described in the Basis for Disclaimer of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.
  24. 24. Basis for Disclaimer of Opinion 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. We have been informed by the plan administrator that the 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, 20X2, and 20X1, and for the year ended December 31, 20X2, that the information provided to the plan administrator by the trustee (or custodian) is complete and accurate. Limited Scope Auditor’s Report Excerpt
  25. 25. Disclaimer of Opinion Because of the significance of the matter described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on these financial statements. Limited Scope Auditor’s Report Excerpt
  26. 26.  Basis of accounting  Use of estimates  Risks and uncertainties  Investment valuation and income recognition  Method for determining participant contributions and basis for determining employer contributions  Notes receivable from participants  Payment of benefits  Income tax status of the plan  Investments that represent 5% or more of plan assets  Amount of unallocated assets  Fully benefit responsive investment contract information and related party transactions  Brief description of the plan, including, vesting and allocation provisions and the disposition of forfeitures Financial Statement Disclosures
  27. 27. Excerpt from AICPA’s Audit and Accounting Guide for Employee Benefit Plans: Reconciliation to Form 5500
  28. 28. Investment Disclosures
  29. 29. Investment Disclosures
  30. 30. Required by ERISA, if applicable:  Schedule of assets held for investment purposes at end of year,  Schedule of delinquent participant contributions and  Schedule of reportable transactions. Examples of the format and content of these schedules are included in the instructions for the Form 5500. Supplemental Schedules
  31. 31. Questions?
  32. 32. Cindy Lusk, CPA, RPA Assurance Manager cindylusk@decosimo.com 423-756-7100 Contact the Subject Matter Expert Cindy has specialized experience performing employee benefit plan audits. A significant portion of her career has been dedicated to auditing plans ranging in size from 100 to 35,000 participants with assets up to $548 million. She is committed to helping her clients meet their fiduciary responsibilities and fully understands the latest laws and regulations concerning benefit plans. To maintain her understanding of benefit plan compliance, Cindy attends the American Institute of Certified Public Accountants (AICPA) conference on employee benefit plans and various seminars and webinars.

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