EisnerAmper Blog

The Compensation and Benefits Blog

DOL Contacts Plan Sponsors with Tips on Selecting a Plan Auditor

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December 9, 2015

Wasser_DianeBy Diane Wasser, CPA

In late November 2015, the Department of labor (“DOL”) began an “email campaign” which involves sending emails to ALL plan administrators and impressing upon them the importance of selecting and monitoring the auditor of their employee benefit plans. You may think that auditors of plans would be unhappy with that -- but at EisnerAmper, we LOVE IT! We fit the mold of a quality auditor. We have procedures in place to stay ahead of what is hot in the area, train our staff exceptionally, and keep our position as an exceptional plan auditor and firm.  

The email caption is “Tips for Selecting and Monitoring a Plan Auditor” and the contents note that “Selecting a qualified CPA who has the expertise to perform an audit in accordance with professional auditing standards is a critical responsibility in safeguarding your plan’s assets and ensuring your compliance with ERISA’s reporting and fiduciary requirements.”  


The email lists certain criteria a plan sponsor might consider in a plan auditor, certain of which are below. Please see our added commentary in bold italics about how EisnerAmper sizes up against the DOL’s recommendation:


  • The number of employee benefit plans the CPA audits each year, including the types of plans. EisnerAmper audits over 400 plans annually including defined contribution, defined benefit, health & welfare, 403(b), and employee stock ownership plans. 

  • The extent of specific annual training the CPA received in auditing plans. EisnerAmper provided over 48 hours of benefit-plan-specific continuing professional education to more than 200 professionals thus far in 2015. 

  • Whether the CPA has been the subject of any prior DOL findings or referrals, or has been referred to a state board of accountancy or the American Institute of CPAs for investigation. EisnerAmper has been selected for review twice by the DOL in the past 4 years as part of their standard practice and we received zero comments; the DOL did not note any audit areas where they believed there were substandard audit procedures; and we have not been referred to a state board.


IRS to Focus on Audits of 403(b) and 457(b) Plans

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November 3, 2015

By Peter Alwardt, CPA

The IRS Commissioner of the Tax Exempt and Governmental Entities group has announced the fiscal year 2016 (10/1/15 – 9/30/16) employee plans examination priorities.  Included in the priorities is a specialty program which will focus audit resources on Internal Revenue Code section 403(b) and 457(b) plans. 

Not-for-profit organization sponsoring section 403(b) plans and governmental organizations sponsoring section 457(b) plans should be reviewing their plans now for operational issues and consider making corrections under the available IRS programs before their plan is subject to audit in order to help avoid potential penalties being assessed by IRS.

In reviewing plans for potential operational issues, we recommend plan sponsors consider the following areas:

  • Plan Documents – Consider whether the procedures currently being practiced in regard to eligibility, compensation, contributions, etc. are following the plan document.
  • Contributions – Compare total contributions to the prior year and as a percentage of payroll. Are there any anomalies? Also consider the timeliness of contributions throughout the year. Were funds put into the plan on the “earliest date possible?”
  • Compensation – Review your plan document to determine the definition of compensation and consider whether there were any extraordinary wages paid (bonuses, etc.). Determine whether employee contributions were withheld from those extraordinary wages and whether that is appropriate based on the Plan document.
  • Eligibility – Consider employees that joined the company during the year. Were they given an opportunity to enter the plan at the appropriate time?

The years that will likely be subject to examination by the IRS will be the 2013 and 2014 plan years, so we recommend beginning your review of those plan years.

If issues arise that you think may cause operational defects in the plan, please speak to your benefits professional  for assistance in correcting the error through the IRS’ Voluntary Compliance Program.

Simplification of Employee Benefit Plan Disclosures

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August 18, 2015

Finney_DeniseBy Denise Finney, CPA

Great news!  New accounting pronouncements were recently issued to simplify disclosures for employee benefit plans. In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-12 (“ASU 2015-12”) in three parts:

Part I - Fully Benefit-Responsive Investment Contracts,
Part II - Plan Investment Disclosures, and
Part III - Measurement Date Practical Expedient.

The ASU amends Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), and Health and Welfare Benefit Plans (Topic 965). 

Part I designates contract value as the only required measure for fully benefit-responsive investment contracts with regards to defined contribution pension plans and health and welfare benefit plans. The amendment eliminates the requirement to present an adjustment to reconcile contract value to fair value on the face of the financial statements. Disclosures regarding the nature and risks of fully benefit-responsive investment contracts are still required.
Part II simplifies investment disclosure requirements for both participant-directed investments and non-participant directed investments. The amendment eliminates the disclosure of investments that represent 5% of more of net assets available for benefits, net appreciation/depreciation for investments by general type, and disaggregation of investments by nature, characteristics and risks. In addition, if an investment is measured using the net asset value per share as a practical expedient and that investment is a fund that files Form 5500 as a direct filing entity, there is no longer a requirement to disclose the investment’s significant investment strategy.
Part III allows an employee benefit plan with a fiscal year-end that does not coincide with the end of a calendar month to measure its investments using the month-end closest to its fiscal year-end.

The amendments are effective for fiscal years beginning after December 15, 2015. Earlier application is permitted. The amendment is applied retrospectively to all periods presented.

Plan sponsors should consider the effect of the amendment on their employee benefit plan financial statement disclosures as a way to simply disclosures.

Alternative Investments in Employee Benefit Plans – Part 2

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August 10, 2015

Wasser_DianeBy Diane Wasser, CPA

The final installment in a 2-part series

Last week, we posted
Part 1  of a series focused on the current trend of employee benefit plans looking at alternative investment strategies for plan investment decisions. Here are two more critical concerns beyond the investment risk and performance.

Plans with direct ownership in certain investments – Certain investments generate unrelated business income and may obligate a plan to file Form 990-T and pay tax to the IRS. Care should be taken to determine whether there are federal and/or state unrelated business income tax liabilities being generated by the holding of certain investments. 

Plans with direct ownership in foreign investments – In addition, certain U.S. tax forms may be required to be filed to report foreign investments to the IRS (including, but not limited to, Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, which is filed by way of attachment to Form 990-T, even in cases where Form 990-T may not be applicable). State filings may apply as well. Noncompliance with these filing requirements may result in potentially onerous penalties for any current and prior years. For instance, if a plan holds a direct interest in a foreign corporation and invests $100,000 or more in a year, it may trigger an IRS filing requirement. One way to remedy past noncompliance with these filing requirements is to enter into the currently available Internal Revenue Service Offshore Voluntary Disclosure Program (“OVDP”). This may result in the abatement of related penalties for non-filing, including, but not limited to, the lesser of 10% of the investment’s fair market value or $100,000 per year for non-filing of Form 926. The OVDP could change or terminate at any time, so timely addressing any direct foreign investments posing exposure is encouraged.

These filings are often required for investments in many defined benefit plans as more and more plan sponsors are diversifying into foreign investments.

Alternative Investments in Employee Benefit Plans

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August 6, 2015

Wasser_DianeBy Diane Wasser, CPA

The first post of a 2-part series.

Many plan sponsors are revisiting investment strategies historically employed when making investment decisions. As a result, employee benefit plans are holding more alternative investments, or investments without a readily determinable fair market value such as common collective trusts (“CCT”), pooled separate accounts (“PSA”), hedge funds and limited partnerships. As long as the plan document allows for such investments, decisions to revise a plan’s investment policy to add alternative investments are appropriate. However, plan sponsors will benefit from considering the following in addition to considering the investment risk related to alternative investments: 

Investment selection and ongoing due diligence – The criteria for evaluating alternative investments requires expertise that may be historically unavailable to plan sponsors, therefore additional investment advisors may be necessary. Once an investment is made, ongoing due diligence serves to assure the investment continues to meet the plan’s needs, and this ongoing task varies by investment type.

Supporting documentation – Such investments typically have specific underlying contracts that require signature by plan management. When signing such contracts we recommend great prudence, including careful review of contract terms affecting the plan as well as the plan sponsor company and implementing a policy to maintain signed copies. Terms may also include commitments to invest additional amounts in the future.

Liquidity of the investment – Many such investments impose restrictions on the frequency of liquidations, as well as restrictions prohibiting liquidation of the investment for a certain period of time after the initial investment is made. Both of these restrictions can be very challenging, especially in the employee benefit plan area where the priority is to pay benefits when due.

Determination of fair value – Determining the fair value of certain alternative investments, including CCTs, PSAs and hedge funds, is less cumbersome than others as such investments report a net asset value that can be used as a practical expedient to determine the fair value. The ability to obtain and transact at the net asset value is especially important for plan’s requiring an annual financial statement audit. Certain investments operate on a reporting delay whereby the alternative investment is unable to provide year end values in a timely fashion and thus plan custodians reporting data on the alternative investment may have values of one to three months prior to the plan’s year-end. This timing can be challenging as plan reporting on form 5500 is as of the plan year-end.

Recent Accounting Pronouncements – Applicable for Employee Benefit Plans

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July 31, 2015
Finney_DeniseBy Denise Finney, CPA

Top Employee Benefit Plan Tips for August

In May 2015, the FASB issued Accounting Standards Update No. 2015-07 (“ASU 2015-07”), Disclosures for Investments in Certain Entities that Calculated Net Asset Value per Share (or Its Equivalent). This ASU amends FASB’s Accounting Standards Codification 820 (“ASC 820”), Fair Value Measurements and Disclosures. 

Plan sponsors should consider the effect of the amendment on their employee benefit plan financial statement disclosures. 

The amendment removes the requirement to categorize within the fair value hierarchy (i.e., Level 1, 2 or 3) all investments for which fair value is measured using the net asset value per share practical expedient. The amendment applies to all periods presented. However, disclosures regarding the nature and risk of investments as well as the probability of the investment being sold at amounts different than net asset value are still required. In addition, a reconciliation is needed from the fair value of assets categorized within the fair value hierarchy to the amounts presented in the statements of net assets available for benefits.

For public business entities (i.e., 11-K filers), ASU 2015-07 is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  For all other entities (i.e., employee benefit plans, excluding 11K filers), this amendment is effective fiscal years beginning after December 15, 2016 and interim periods within those fiscal years.  Early adoption is permitted. 

Recap of Top Employee Benefit Plan Tips for August:

  • Read ASU 2015-07, Disclosures for Investments in Certain Entities that Calculated Net Asset Value per Share (or Its Equivalent).
  • Determine if the employee benefit plan has investments measured using the net asset value per share practical expedient.
  • Consider adopting the amendment early.
  • Update financial statement disclosures.
    • Remove leveling of investments measured using the net asset value per share practical expedient.
    • Add a reconciliation from the fair value hierarchy table to the statements of net assets available for benefits.

Actuarial Valuation and Actuarial Census for Defined Benefit Plans

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June 30, 2015

Finney_DeniseBy Denise Finney, CPA

Top Employee Benefit Plan Tips for July

Plan sponsors of defined benefit plans are gearing up for their plan audits. Before the actuarial valuation and actuarial census are finalized, plan sponsors should review key data to ensure the information is complete and accurate.

Plan sponsors are responsible for providing an employee listing to their actuaries along with updates each year for new employees, terminated employees and retirees. This listing is called the actuarial census. The participant data provided generally includes date of birth, date of hire, date of participation, date of termination, date of retirement, gender, and other key plan benefit data that is used to determine benefits (e.g., compensation or job description).  It is important for plan sponsors to review the information to ensure that all eligible employees are included and that the data regarding each participant is correct, as this information is used by the actuary to determine the benefit obligations, required contributions, and benefit amounts.

Plan sponsors are also responsible for reviewing the actuarial methods and assumptions with the actuary prior to completion of the valuation and challenge whether the factors used in the valuation are reasonable based on changes in the plan, prior year factors, demographics of the participants, etc. Two significant assumptions that should be reviewed are the discount rate and life expectancy of the participants. The new RP-2014 mortality tables and the mortality improvement scale MP-2014 were issued at the end of 2014 by the Society of Actuaries. Plan sponsors should determine whether the plan’s mortality table should be updated to RP-2014 based on the life expectancy of the plan’s participant population.

Recap of Top Employee Benefit Plan Tips for July:

  • Review the actuarial census to ensure all eligible employees are included
  • Review the actuarial census to ensure participant data is accurate
  • Review the actuarial methods and assumptions and determine if they are appropriate
  • Determine whether or not the plan’s mortality table should be updated to RP-2014
EisnerAmper is an independent member of Allinial Global.
EisnerAmper is an independent member of EisnerAmper Global.