june 2010: 403(b) plan audits - are you prepared?
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8/7/2019 June 2010: 403(b) Plan Audits - Are You Prepared?
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For over 30 years, 403(b) plans covered by ERISA have been subject to limited Form 5500 ling require-
ments. In November 2007, the Department of Labor (DOL) and the Internal Revenue Service (IRS) pub-
lished nal regulaons to remove the limited ling exempon that applied to 403(b) plans. As a result,
ERISA-covered 403(b) plans will now be subject to the same Form 5500 reporng requirements as 401(k)
plans, eecve with their 2009 plan year end. Generally, 403(b) plans with over 100 parcipants will also
be required to submit audited plan nancial statements with Form 5500 lings.
Which 403(b) plans are aected:
Plans generally included are:
501c(3) charies
Schools and universies
Hospitals
Plans generally excluded are:
Governmental plans
Church plans
Certain other non-ERISA 403(b) programs (deferral only Plans that sasfy the DOL safe harbor
exempon at 29CFR2510.3-2(f))
403(b) PLAN AUDITS - ARE YOU PREPARED?
Jeff Holt, CPA - Partner, Assurance & Advisory Practice
JUNE 2010
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What else is required:
Plan sponsors/employers must have an adopted wrien plan document that includes the
following provisions: eligibility, universal availability for deferrals, contribuon limits, distribu-
on opons, informaon about approved annuity contracts and/or custodial agreements and
investment policies
Provide an up-to-date summary plan descripon to all newly eligible employees
Determine whether the plan is in compliance with IRS and DOL rules and correct any decien-cies
Form 5500 must be led electronically
How do you know if a plan needs an audit:
Since 403(b) plans have never been subjected to audit requirements in the past, many employers have
not kept historical documentaon on plan parcipants. This may present a challenge as the employer
aempts to determine the number of eligible parcipants and the assessment of whether an audit is
required. If its concluded that you do need an audit, the availability of historic plan parcipaon data
may aect the scope of work your 403(b) plan auditor is able to perform to enable the auditor to issue
an opinion.
On July 20, 2009, the DOL issued Field Assistance Bullen (FAB) No. 2009-02, which communicates the
DOLs more lenient posion on accepng auditors reports with certain scope limitaons for 403(b) plan
audits. Although the Bullen lists four condions that must be met to qualify for the enforcement relief,
it does not provide audit relief.
In February 2010, the DOL issued Field Assistance Bullen (FAB) 2010-01, which supplements DOL FAB
No. 2009-02 and addresses quesons the DOL received concerning the scope of FAB No, 2009-02 and the
safe harbor regulaons at 29 CFR 2510.3-2(f). DOL FAB 2010-01 addresses, among other things, the plan
administrators responsibility to determine whether the condions of DOL FAB No. 2009-02 have beensased with respect to excluded contracts from the plans annual report. It 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 plans nancial statements, the DOL expects that the auditor will alert
the plan administrator. Plan administrators have an obligaon to take reasonable steps to resolve ques -
ons concerning the exclusion of such contracts in their annual report. If the plan administrator and
auditor do not agree with how to resolve issues relang to excluded contracts, the DOL expects these
issues to be noted in the audit report.
What steps you should take now?
Your rst step is lining up a qualied audit rm to do your inial 403(b) plan audit. You will want some -
one qualied in employee benet plan audits subject to ERISA and is on top of the changes in regula-
ons. Once you have idened the right auditor, some addional steps you should take are:
Understand how the DOLs new nancial reporng and audit requirements will aect your plan
Establish internal responsibility for the plans reporng funcon
Communicate with the service provider(s) on the plans informaon needs
Make sure plan parcipant records are complete and accurate
Get the plans books and records in shape
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Establish proper internal controls over the plans nancial reporng process
Ensure that the plan has an up-to-date wrien plan document
Ensure that the plan is in compliance with the plans tax exempon
Determine what 2008 comparave nancial informaon the plan will need (may be audited,
reviewed or compiled)
What is the penalty for noncompliance?
If plan sponsors fail to comply with the 403(b) plan rules, the plan could be disqualied, subjecng all
plan parcipants to taxaon on their poron of plan assets. If there is a failure to le a complete Form
5500, plan sponsors can be subject to uncapped DOL penales of up to $1,100 per day and IRS penales
of $25 per day, capped at $15,000.
SingerLewaks ERISA Experience
SingerLewak has performed ERISA audits for over 10 years. Our approach has emphasized quality and
thoroughness, as well as providing added value to our clients by helping them beer understand their
plans and the related ling and compliance requirements.
SingerLewak was one of the founding members of the American Instute of Cered Public Accoun-
tants (AICPA) Employee Benet Plan Audit Quality Center, which was founded in March 2004 and now
has over 1,800 members. This means we are commied to providing quality benet plan audits, have
established training and quality control procedures over our benet plan pracce, and perform annual
internal inspecons.
With our experse, our clients can be assured that their ERISA audit will be performed to the level and
value of service they expect. We welcome any quesons you may have. For more informaon, or if we
can be of assistance to you, please do not hesitate contact one of SingerLewaks Nonprot Partners:
Stephen P. Carter - Silicon Valley
Lewis Sharpstone - Los Angeles
Je Holt - Los Angeles
Rob Schlener - Orange County