This webinar provided a 401(k) and pension plan accounting and auditing update for plan sponsors, including management, accountants, and Human Resource professionals. In addition, the presentation provided an update on recent Employee Retirement Income Security Act (ERISA) criminal cases, the outcomes of those cases, and the prosecution.

1. Building Successful
Employee Relationships
A Cornerstone to Fraud Prevention
and Risk Management

2. Building Successful
Employee Relationships
A Cornerstone to Fraud Prevention
and Risk Management

3. Building Successful
Employee Relationships
A Cornerstone to Fraud Prevention
and Risk Management

4. Retirement Plan
Accounting:
A Sponsors Perspective
Dan Sturm, Principal
Shalane Cohen, Senior Manager
Danielle Guinter, Senior Manager

5. Introductions
Dan Sturm
• Principal
• CPA
• Employee Benefits
Plan Leader
Shalane Cohen
• Senior Manager
• CPA
Danielle Guinter
• Senior Manager
• CPA

6. Objectives
• Gain understanding of new accounting pronouncements that directly
impact employee benefit plan accounting and disclosures.
• Gain an understanding of updates to regulations that relate to 401(k)
and pension plan accounting.
• Provide tools to select a qualified plan auditor.
• Understand common audit pitfalls.
• Identify ways to mitigate the risk of a costly mistake in administering a
benefit plan through examples of ERISA criminal cases.

7. Accounting Standards
Update

8. Accounting Standards Update (ASU)
2015-07
• Disclosures for Investments in Certain Entities that Calculate Net
Asset Value
• Clarifies how investments valued using the net asset value (NAV) practical
expedient within the fair value hierarchy should be classified.
• Issued in order to address diversity in practice.
• Key provision exempts investments measured using the NAV practical
expedient from categorization within the fair value hierarchy and related
disclosures.
• Early adoption will likely save time on year end audits.
• Effective for fiscal years beginning after December 15, 2015, and early
adoption is permitted.

9. Accounting Standards Update (ASU)
2015-07
• ASU 2015-07 - Entities that elect to measure the FV of an
investment using the NAV (or its equivalent) per share
• Previously reported as Level 2 or 3
• No longer required to be classified as level 1, 2, or 3
• Now presented as reconciling item in table

10. Accounting Standards Update (ASU)
2015-12
• Plan Accounting
• Three Parts
• Part I Fully Benefit-Responsive Investment Contracts
• Part II Plan Investment Disclosures
• Part III Measurement Date Practical Expedient.
• ASU simplifies or eliminate some of the financial statement reporting and
disclosures that were previously required for employee benefit plans.
• Effective for years beginning after December 15, 2015
• Early adoption permitted and encouraged

11. Part I: Fully Benefit-Responsive
Investment Contracts
• Simplifies reporting with respect to fully benefit-responsive
investment contracts and disclosures
• NO adjustment from fair value to contract value on the face of the financial
statements.
• NOT included in the fair value table in the notes to the financial statements
• No reconciliation of beginning and ending values for the plan year
• NO disclosure of quantitative inputs to valuation
• Does NOT apply to CCT’s and Stable Value Funds that invest in GIC’s
(See ASU 2015-07)

12. Part I: No FV to CV Adjustment
Investments at contract value
7,377,000 $6,245,000
1,500,000 $1,400,000

13. Part I: Not Included in the Fair Value
Table in the Notes
$7,377,000

14. Part I: Quantitative Disclosures &
Level 3 Reconciliation

15. Part II: Plan Investment Disclosures
• Investments in the hierarchy table are no longer segregated by nature, characteristics, and risk,
but only by general type of investment (i.e. bonds, mutual funds, collective funds, etc.)
• Self directed brokerage accounts are one general type

16. Part II: Plan Investment Disclosures
• Not required to disclose individual investments >=5% of net assets
available for benefits
• Net appreciation/depreciation only disclosed in aggregate, not by
investment type
• Investment strategy disclosures for investments measured at NAV
(or its equivalent) using practical expedient in ASC 820 are not
required if that investment is in a fund that files an annual report on
Form 5500 as a direct-filing entity (DFE).
• Investment listed on Schedule D of Form 5500 are DFE’s

17. Part II: Plan Investment Disclosures

18. Part III: Measurement Date Practical
Expedient
• Applies to plans with a fiscal year end that does not coincide with a
month end.
• Provides a practical expedient to permit plans to measure
investments and investment-related accounts as of a month-end
date that is closest to the plan’s fiscal-year.

19. Regulations Update

20. IRS Determination Letters
• April 30, 2016 deadline for pre-approved retirement plan documents
• What happens if a client did not adopt?
• They make a VCP submission. Restore the tax-favored status of the plan by adopting a
restated plan document and filing a VCP submission with the IRS. Samples on IRS website
• New option allows financial institution or service provider to request a closing agreement on
their behalf.
• 403(b) IRS Determination Letters

21. IRS Determination Letters
• Effective January 1, 2017, the staggered five year cycle for individually
designed plans will be eliminated.
• From this date on, a sponsor of an individually designed plan will be
permitted to submit a letter application for a plan on initial plan
qualification and for qualification upon plan termination.
• What does this mean for our clients?
• The DOT and IRS that they are considering ways to make it easier for plan sponsors
to comply with the qualified plan document requirements. Potential examples:
• Providing model amendments
• Not requiring certain plan provisions or amendments if not relevant to plan

22. Form 5500 Changes for 2015
• In 2014, IRS announced proposed changes to the Form 5500 series
to monitor plan compliance.
• Plan compliance questions are found in Schedules H, I and R, and
they are optional for the 2015 plan year.
• IRS has released an FAQ document for changes
• Congress has repealed change in law that would have given plans
another month with the extension.

23. DOL Conflict of Interest Rule
• DOL says rules have not been meaningfully changed since 1975
• “The conflict of interest final rule and related exemptions will
protect investors by requiring all who provide retirement
investment advice to plans and IRAs to abide by a “fiduciary”
standard – putting their clients’ best interest before their own
profits.”
• The final rule is effective in phases between April 10, 2017 and
January 1, 2018.

24. Missed Deferrals
• IRS modified Employee Plans Compliance Resolution System which
permits plan sponsors to correct failures and maintain qualified
status easier
• https://www.irs.gov/Retirement-Plans/New-Methods-for-
Correcting-Elective-Deferral-Errors

25. Corrective EE Contributions
BEFORE
• Plan sponsor was required to make a QNEC of 50% of the amount the affected
participant would have deferred
NOW
• No corrective contributions are required if
• Correct deferrals begin by the first payment of compensation made after the earlier of
• Three months after the failure first began for the affected employee
• The last day of the month after the month the affected eligible employee first notified the plan sponsor
• 25% corrective contributions are required if
• Period of failure exceeds 3 months but correct deferrals begin by the earlier of
• The last day of the second plan year after the plan year in which the failure first occurred
• The last day of the month after the month the affected employee notified the plan sponsor

26. Corrective Contributions
Under both situations the plan sponsor must also…
• Issue a written notice to affected employees within 45 days after the
date corrected deferrals begin
• Make corrective contributions to make up for missed matching
contributions plus earnings on all missed deferrals

27. Selecting A Plan Auditor
and Audit Pitfalls

28. Selecting an Auditor
• During December 2015 DOL sent letters to all plan administrators
required to have audit
• Indicated importance of hiring a qualified and experienced CPA firm
• Urges administrators to use care in selecting and auditor
• Consider:
• Number of plans audited by CPA firm
• Extent of CPA firm trainings
• Status of CPA firm license
• Whether the firm has been subject to DOL findings or referrals
• Results of recent CPA firm peer review

29. Selecting an Auditor
• A quality audit will help a plan administrator carry out its legal
responsibility to file a complete and accurate annual return/report for
the plan each year.
• DOL provides guidance and Q&A for selecting an auditor at
http://www.dol.gov/ebsa/publications/selectinganauditor.html
• AICPA provide guidance on selecting an auditor at:
http://www.aicpa.org/InterestAreas/EmployeeBenefitPlanAuditQuality/
Resources/PlanSponsorResourceCenter/DownloadableDocuments/Plan_
Sponsor_Guidelines_preparing_RFP.pdf

30. Selecting an Auditor
McKonly & Asbury
• Dedicated employee benefit plan team
• Member of the AIPCA Employee Benefit Plan Audit Quality Center
• 75+ employee benefit plan audits including defined contribution, defined
benefit, health & welfare, ESOP and 403b plans
• Practice continues to grow and has more than tripled in size in last 10 years
• Entire team trained at least annually, several members attend local and
national benefit plan conferences at least annually
• Firm license is active
• Has not been subjected to DOL findings or referrals
• Received a “pass” on recent peer review

31. DOL Audit Findings/Update
• Audits becoming more deficient
• Recent DOL audit study:
• 4/10 audits fail to meet professional standards
• 28 CPA’s sent to state boards
• Potential $50k penalty for deficient audits
• Emphasized focus on plan cyber security, expect additional
requirements similar to healthcare data protection

32. ERISA Criminal Case
Examples

33. Produce Distributor Embezzling
Money
From Profit-Sharing Plan Case• IRS announced indictment charging the owner and trustee of the plan with embezzling
800k from the profit-sharing plan to the corporate accounts.
• Was done in 3 separate transactions of $350k, 415k & 73K causing the plan worth
almost 900k to essentially be depleted
• Alleged that this money was used to purchase produce for the company and for the
President’s personal expenses.
• In order to cover up the embezzlement, plan statements were created that reflected
the employees’ full account balances as if no money has been taken out of the Plan.
• DOL Assistant Secretary stated: Let this indictment remind fiduciaries that we will not
tolerate benefit plan assets being misused to subsidize a lifestyle. They must conduct
themselves with undivided loyalty to safeguarding the retirement security of the plan’s
participants, and we will vigorously pursue all legal remedies when our investigations
uncover such betrayals of trust.

34. Gruber Systems, Inc. Employee Stock
Ownership Plan Case
• DOL filed a complaint alleging the defendants caused the company’s employee stock
ownership plan to purchase company stock for significantly more than fair market
value, resulting in losses to participants.
• DOL alleged the money was used to fund the financially distressed company instead to
fund the retirement accounts of Gruber retirees.
• The judgment ordered the company and CEO to return $1.1 million to the company’s
ESOP for losses plus $220,000 in civil money penalties.
• Defendants are permanently barred from serving as a fiduciary or service provider to
an ERISA covered employee benefit plan.
• Regional director, Crisanta Johnson, of EBSA is quoted as saying: “Employee Stock
Ownership Plans are intended to promote employee ownership and fund employees’
retirements, not to bail out a plan sponsor experiencing financial distress.”

35. Questions?
Dan Sturm
• Principal
• CPA
• Employee Benefits
Plan Leader
• dsturm@macpas.com
Shalane Cohen
• Senior Manager
• CPA
• scohen@macpas.com
Danielle Guinter
• Senior Manager
• CPA
• dguinter@macpas.com

38. Questions?
Dan Sturm
• Principal
• CPA
• Employee Benefits
Plan Leader
• dsturm@macpas.com
Shalane Cohen
• Senior Manager
• CPA
• scohen@macpas.com
Danielle Guinter
• Senior Manager
• CPA
• dguinter@macpas.com

39. Building Successful
Employee Relationships
A Cornerstone to Fraud Prevention
and Risk Management