2015-06-25 Trending Topics in Employee Benefit Plans
1. Thrive. Grow. Achieve.
Trending Topics in
Employee Benefit
Plans
Eric W. Glantz, Audit and Quality Control Partner
Angelo G. Hermosura, Senior Audit Manager
June 25, 2015
2. PROGRAM CONTENT
• PROPOSED CHANGES TO EMPLOYEE BENEFIT PLAN
REGULATIONS
• COMMON AREAS OF NONCOMPLIANCE WITH EMPLOYEE
BENEFIT PLAN REGULATIONS
• FIDUCIARY RESPONSIBILITIES OF PLAN ADMINISTRATORS
• EBP AUDITOR COMPLIANCE ISSUES – RESULTS OF DOL AUDIT
QUALITY STUDY
• COMMON AUDIT DEFICIENCIES BY AUDITORS
• CURRENT DOL ENFORCEMENT ISSUES
• DOL AUDIT FOCUS
• IRS AUDIT FOCUS
• COMMON FRAUD RISKS AREAS
• RESOURCES
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3. LEARNING OBJECTIVES
• UPDATE YOUR UNDERSTANDING OF RELEVANT CURRENT
ISSUES EFFECTING EMPLOYEE BENEFIT PLAN COMPLIANCE
WITH EMPLOYEE RETIREMENT INCOME SECURITY ACT
(ERISA) AND DEPARTMENT OF LABOR (DOL), INTERNAL
REVENUE SERVICE (IRS) REGULATIONS
• LEARN THE COMMON AREAS OF EMPLOYEE BENEFIT PLAN
(EBP) COMPLIANCE DEFICIENCIES BASED ON RECENT
STUDIES AND AUDITS PERFORMED BY DOL AND IRS
• LEARN HOW TO AVOID COMMON NONCOMPLIANCE FOR
YOUR PLAN
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4. PROPOSED CHANGES TO EMPLOYEE
BENEFIT PLAN REGULATIONS
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• NEW ACTUARIAL STUDY LONGEVITY IMPROVEMENTS
CONSIDERATIONS
• NEW FORM 5500 REVISION
• FASB SIMPLIFICATION PROJECT
• AUDITING STANDARDS BOARD PROJECT TO IMPROVE AUDIT
REPORTS
5. RP-2014 MORTALITY TABLES
• SOCIETY OF ACTUARIES RELEASED NEW MORALITY TABLES
IN OCTOBER 2014
• NEW MORALITY TABLES SHOULD BE USED WHENEVER
POSSIBLE – EVEN IF ACTUARY PERFORMED VALUATION AT
THE BEGINNING OF THE PLAN YEAR
- Clarifies that all information available through the date of the financial
statements are available to be issued should be evaluated to determine if
the information provides additional evidence about conditions that existed at
the balance sheet date
• PROJECTED 5%-10% INCREASE IN PLAN BENEFIT
OBLIGATION
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6. FORM 5500 REVISION
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• AMENDED APPROXIMATELY EVERY 10 YEARS
• RESPONSIBLE GOVERNMENT AGENCIES WILL BE
ASSESSING CHANGES TO THE FORM 5500 IN THE SUMMER
OF 2015
• NO PROPOSED CHANGES HAVE BEEN MADE PUBLIC AND IT
IS UNCERTAIN WHEN NEW FORM WILL BE RELEASED
7. FASB SIMPLIFICATION PROJECT
• SIMPLIFY CERTAIN MEASUREMENT AND DISCLOSURE
REQUIREMENTS
–Elimination of disclosure of individual investments over 5% of net
assets available for benefits
–Elimination of net appreciation of investments by general type
–Fully benefit responsive investment contract would be measured,
presented, and disclosed at contract value
• TARGET DATE OF FINAL ISSUANCE OF ACCOUNTING
STANDARDS UPDATE (ASU): THIRD QUARTER OF 2015
–Removal of requirement to categorize within the fair value hierarchy
those investments measured at net asset value.
• FINAL ASU ISSUED IN MAY 2015 (ASU 2015-07)
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8. AUDITING STANDARDS BOARD PROJECT
TO IMPROVE AUDIT REPORTS
• OBJECTIVE: PROVIDE MORE VALUE ON THE USE OF AUDIT
REPORT
− Possibly address the audit reports to the participants and
beneficiaries
− Add clarity to the auditor’s responsibilities, especially under a limited
scope engagement
−Possibly contain more identifying information of the audit firm
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9. COMMON AREAS OF NONCOMPLIANCE
WITH EMPLOYEE BENEFIT PLAN
REGULATIONS
• FAILING TO OPERATE THE PLAN PRUDENTLY AND FOR THE
EXCLUSIVE BENEFIT OF PARTICIPANTS
–Unreasonable plan and investment fees
–Non-compliance with fee disclosures to participants
–Untimely remittance of contributions
• USING PLAN ASSETS TO BENEFIT CERTAIN RELATED PARTIES TO THE
PLAN, INCLUDING THE PLAN ADMINISTRATOR, THE PLAN SPONSOR,
AND PARTIES RELATED TO THESE INDIVIDUALS
• FAILING TO PROPERLY VALUE PLAN ASSETS AT THEIR CURRENT FAIR
MARKET VALUE
• FAILING TO FOLLOW THE TERMS OF THE PLAN (UNLESS
INCONSISTENT WITH ERISA)
–Definition of compensation
–Eligibility of participants
–Hardship withdrawals and benefit payments
–Loan terms compliance
• FAILING TO PROPERLY SELECT AND MONITOR SERVICE PROVIDERS;
–Absence of request for proposal process
–Due diligence
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ERISA CIVIL
VIOLATIONS
10. FIDUCIARY RESPONSIBILITIES OF
PLAN ADMINISTRATORS
• EXCLUSIVE BENEFIT: ACTING SOLELY IN THE INTEREST OF
PLAN PARTICIPANTS AND THEIR BENEFICIARIES AND WITH
THE EXCLUSIVE PURPOSE OF PROVIDING BENEFITS TO
THEM
• PRUDENCE: CARRYING OUT DUTIES AS AN EXPERT WOULD
• DIVERSIFICATION: BALANCING PLAN INVESTMENTS TO
AVOID LARGE LOSSES
• DOCUMENTS: FOLLOWING PLAN DOCUMENTS AND OTHER
GOVERNING DOCUMENTS (UNLESS INCONSISTENT WITH
ERISA)
• PLAN EXPENSES: PAYING ONLY REASONABLE PLAN
EXPENSES
• PARTIES IN INTEREST TRANSACTIONS: HAVE A PROCESS IN
PLACE FOR IDENTIFYING PARTIES IN INTEREST
TRANSACTIONS AND UNDERSTAND AND COMPLY WITH
RULES UNDER SUCH TRANSACTIONS.
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RESPONSIBILITIES
11. FIDUCIARY RESPONSIBILITIES OF
PLAN ADMINISTRATORS
• FIDUCIARIES WHO DO NOT FOLLOW THE BASIC STANDARDS
OF CONDUCT MAY BE PERSONALLY LIABLE TO RESTORE
ANY LOSSES TO THE PLAN, OR TO RESTORE ANY PROFITS
MADE THROUGH IMPROPER USE OF THE PLAN’S ASSETS
RESULTING FROM THEIR ACTIONS.
• IN ADDITION TO PERSONAL LIABILITY, FIDUCIARIES CAN BE
SUBJECT TO CRIMINAL PENALTIES.
• DOL CAN ASSESS A CIVIL PENALTY OF UP TO 20% OF THE
APPLICABLE RECOVERY AMOUNT.
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LIABILITIES
12. FIDUCIARY RESPONSIBILITIES OF
PLAN ADMINISTRATORS
• DEVELOP PROPER COMMITTEE STRUCTURES FOR PLAN
GOVERNANCE
• ESTABLISH WRITTEN PRACTICES FOR GOVERNING THE
PLAN, FOLLOW THEM AND DOCUMENT MEETINGS AND
RESULTS
• INVENTORY PLAN SERVICES AND FEES AND REVIEW TO
ENSURE FEES ARE REASONABLE
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BEST
PRACTICES
13. EBP AUDITOR COMPLIANCE ISSUES
RESULTS OF DOL AUDIT QUALITY STUDY
STATISTICAL
SAMPLE OF 400
PLAN AUDITS
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• RELEASED IN MAY 2015
• READ THE FULL REPORT AT
WWW.DOL.GOV/EBSA/PDF/2014AUDITREPORT.PDF
• POPULATION FOR THE STUDY WAS BASED ON 2011 FORM
5500 FILINGS
• 6 STRATA BASED ON SIZE OF THE AUDITOR’S EBP PRACTICE
–1-2 plans
–3-5 plans
–6-24 plans
–25-99 plans
–100-749 plans
–750+ plans
• 1 AUDIT IN LOWEST 2 STRATA, 5 IN ALL OTHERS
14. EBP AUDITOR COMPLIANCE ISSUES
RESULTS OF DOL AUDIT QUALITY STUDY
DOL SAMPLING
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• TYPE OF AUDIT
–80% = Limited scope
–19% = Full scope
–1% = Other
• PLAN TYPE
–89% = DC Pension Plan
–6% = DB Pension Plan
–5% = Welfare Plan
• SPONSOR TYPE
–95% = Single Employer
–3% = Multi Employer
–2% = Multiple Employer
• EBPAQC MEMBER
–55% = Yes
–45% = No
15. EBP AUDITOR COMPLIANCE ISSUES
RESULTS OF DOL AUDIT QUALITY STUDY
FINDINGS
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• SIZE OF EBP MATTERS
–Correlation between a firm’s EBP Practice and deficient work
–Nearly 75% of plan audits were deficient in firms who audit 1-2 plans
annually
• Deficient audits in this strata also had many more deficiencies
• Less EBP specific training by firms in this strata
• PRACTICE MONITORING/PEER REVIEW ARE NOT USEFUL
IDENTIFIERS OF QUALITY EBP AUDITS
–Firms had clean peer review reports where DOL identified deficient
EBP audit work
• 52% in the 1-2 strata
• 58% in the 3-5 strata
• 63% in the 6-24 strata
16. EBP AUDITOR COMPLIANCE ISSUES
RESULTS OF DOL AUDIT QUALITY STUDY
FINDINGS
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• OTHER USEFUL FINDINGS
–Plan Administrators continue to have a difficult time differentiating
between firms that have the expertise to perform quality audits and
those that do not
–EBPAQC member firms had a lower deficiency rate than non-member
firms
–Audit work is often of lesser quality in engagements where firms have
less expertise
–Problematic audit areas continue to be the same EBP-specific areas
as previously identified
–No meaningful correlation between audit fees and the quality of audit
work
–Recommendation from the study - DOL to communicate to Plan
Administrators that currently use an auditor that performs fewer than 5
plan audits per year – provide information about how to select a
qualified plan auditor
–Resources - www.dol.gov/ebsa/publications/selectinganauditor.html
• REFERRALS OF DEFICIENT AUDIT WORK
–131 referrals made to the AICPA’s Professional Ethics
–13 referrals made to state boards of accountancy – unlicensed CPA’s
17. CURRENT DOL ENFORCEMENT ISSUES
REPORTING
COMPLIANCE
ENFORCEMENT
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• HIGH RISK AUDIT ENGAGEMENTS
–Health and Welfare Plans – claim and adjudication process not properly
audited – 20% of claims are processed incorrectly
–ESOP’s – sub-standard closely-held stock appraisals
–EBP Plan’s that hold hard to value assets – proper fair valuation of those
assets
–Re-inspection of CPA firms that perform fewer than 100 audits annually
• OTHER ENFORCEMENT ISSUES
–Reporting of fidelity bonding status – Questioned on Form 5500 (about
1,200 answered no) – typically 10% of plan assets not to exceed $500,000
– Field Assistance Bulletin 2008-04
–Missing audit reports – not filed with Form 5500
–Compliance with Small Pension Plan Audit Waiver requirements – waiver
claimed by plans not entitled – 95% of plan assets need to be held with a
financial institution or have fidelity bond
–Delinquent Filer Voluntary Correction (DFVC) program compliance
–Plan asset accountability – different beginning and ending net plan assets
–Health and welfare plan non-filers
–Stop filers (cooperative initiative with IRS)
18. DOL AUDIT FOCUS
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• ERISA TITLE I
–Participant Rights and Benefits
• Fee disclosures
–Fiduciary Compliance
• Follow plan terms
• Act solely in participants’ interest and avoid conflicts of interest
• Pay only reasonable fees from plan
• Apply prudent expert standard
–Annual Reporting Compliance
• Form 5500, including audit of large plans
19. IRS AUDIT FOCUS
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• TAX QUALIFICATIONS
–Plan Documents
• Timely executed
• Properly drafted
–Operational Compliance
• Adhering to plan terms
• Non-discrimination testing
• Contribution Limitations
–Reporting Compliance
• Form 5500, 8955-SSA, 1099R
• Forms 5330 and 990-T
20. COMMON FRAUD RISKS AREAS
•DOL CRIMINAL CASES
–Theft and embezzlement of plan assets using wire transfers, forged
checks and other means.
–Failure to deposit employee contributions into the plan.
–Funneling contributions into a secret account.
–Transfer of funds from the plan to an outside account in the plan’s
name.
–Unauthorized withdrawals.
–Unauthorized use of plan assets to invest in other business interests.
–Issuing fraudulent statements and dividend checks to clients.
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21. COMMON FRAUD RISKS AREAS
•DOL CRIMINAL CASES
–Making materially false statements in the plan’s annual report and
fraudulent annual report.
–Defrauding the company by issuing duplicate paychecks.
–Failure to pay pension benefits due to employees.
–Kickbacks.
–Failure to deposit checks to be rolled over from a predecessor’s plan
into a new plan.
–Defrauding a lending company.
–Fraudulently obtaining funds from outside sources.
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22. • WWW.DOL.GOV/EBSA
–For DOL publications, FAQs, copies for Form 5500, instructions and related
schedules
• EBSA OFFICE OF THE CHIEF ACCOUNTANT (202) 693-8360
• EBSA OFFICE OF REGULATIONS AND INTERPRETATIONS (202) 693-8500
–For questions about ERISA reporting, filing, or other regulatory
requirements
• DOL EFAST HELP CENTER (866) 463-3278
–For questions about Form 5500 and the related schedules
•WWW.AICPA.ORG/INTERESTAREAS/EMPLOYEEBENEFITPLANAUDITQUALITY
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BEST
PRACTICES
RESOURCES
