EisnerAmper Blog

The Compensation and Benefits Blog

Actuarial Valuation and Actuarial Census for Defined Benefit Plans

 Permanent link

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

Kriste DeAngelo Speaks at NJSCPA Conference

 Permanent link

May 21, 2015

By Kelly Critelli, CPA
On May 7, Kriste Naples-DeAngelo presented the session “Accounting and Auditing Update on Employee Benefit Plans” during the New Jersey Society of Certified Public Accountants’ annual Employee Benefits Conference. Kriste presented a high-level view of new accounting topics in the benefit plan space, looked back at standards implemented in the prior year, and discussed best practices.
Among a variety of other topics, Kriste spoke on the implications of plan mergers, acquisitions and terminations. These types of transactions are becoming more common for employee benefit plans, yet accounting for them is a complex assignment for both the plan sponsor and third-party administrators involved.
Kriste highlighted the fact that the physical asset transfer date is not necessarily the effective date of the transaction. Instead, plan sponsors should determine the effective date based on board resolutions, plan amendments and minutes of board meetings. Once the appropriate date is determined, the plan custodians need to coordinate the ownership of the assets at the measurement date. This is where much of the complexity lies and it benefits plan sponsors to facilitate this discussion to ensure proper accounting and reporting of assets.
Finally, Kriste reminded participants that for a terminating plan or a plan that is being merged into another plan, the annual audit, if required, may be able to be deferred if the plan was in existence for less than 7 months of the plan year. If that is the case, 2 plan years may be audited simultaneously.
As with all complex employee benefit plan transactions, sponsors should consider consultation with their ERISA attorney to ensure that the transaction is handled appropriately.

Denise Finney Speaks to the Tennessee State Society of CPAs on Independence

 Permanent link

May 15, 2015

By Kelly Critelli, CPA

Denise_TennesseeOn May 4, Denise Finney, a director in EisnerAmper’s Pension Services Group, spoke at the annual Tennessee State Society of Certified Public Accountants’ Employee Benefits Conference. Denise addressed the audit independence standards as promulgated by the American Institute of Certified Public Accountants, the Department of Labor and the Securities and Exchange Commission, as well as the conditions for providing non-attest services to audit plan clients.

During her discussion on AICPA independence provisions, Denise focused on the provision that states that auditors must be independent from affiliates, which is new for engagement periods beginning on or after January 1, 2014. Denise explained that affiliates include:

  1. Plan sponsors.
  2. The entity that controls the plan sponsor.
  3. Any union or participating employer that has significant influence over a multiple or multiemployer plan.
  4. Investment in a plan (if the plan controls the investment entity or if the investment gives the plan significant influence over the investment entity and the investment is material to the plan).
  5. Other plans of the plan sponsor.

There was also a discussion on the exposure draft issued by the AICPA, dated April 16, 2015, to revise the definition of affiliate as it relates to multiple and multiemployer plans.  Revisions include: 

  1. For multiemployer plans, the AICPA is adding “material” to the significant influence factor. An affiliate is “Any entity, such as a union, participating employer, or a group association of employers, that has significant influence over a multiemployer employee benefit plan financial statement attest client and the plan is material to such entity.”
  2. For multiple employer plans, the AICPA is removing the significant influence factor. An affiliate is “The participating employer that is the plan administrator of a multiple employer employee benefit plan financial statement attest client.”

The AICPA has requested comments on the exposure draft by May 18, 2015.  And the revised definitions will be effective the last day of the month in which the interpretation is published in the Journal of Accountancy

In addition to her presentation on independence and non-attest services, Denise also participated in an employee benefit plan expert panel, along with Marcus Aron, senior auditor from the U.S. Department of Labor.

Diane Wasser Speaks at FAE Conference

 Permanent link

May 6, 2015

By Kelly Critelli, CPA

On May 4, Diane Wasser, Partner-in-Charge of EisnerAmper’s Pension Services Group, spoke before the Foundation for Accounting Education, an affiliate of the New York State Society of CPAs at their 2015 Employee Benefits Conference Ensuring Audit Excellence and the Public Trust.

Her session was titled “Audit Findings – The Next Step.” Diane  began with a high-level discussion on the responsibilities of employee benefit plan auditors, then went on to reference ASC 960, 962 and 965, which “all note that the primary objective of plan financial statements is to provide financial information that is useful in assessing the plan’s present and future ability to pay benefits when due.”

Diane then explored certain findings that commonly arise from effective plan audit procedures and the related audit responses. Areas discussed included participant and employer contributions, participant account activity allocations, eligibility and distributions. Diane stressed that the most important responses to any audit findings include:

Understanding the client’s process;

  • Determining the underlying cause of the errors;
  • Questioning if other participants are impacted;
  • Determining the financial statement impact of the error;
  • Examining any breakdowns in internal controls; and finally
  • Concluding on whether the error is a deficiency, significant deficiency or material weakness and whether it qualifies as an operational defect or a disqualifying event.

Diane further discussed how to recognize auditor responsibility and effective ways to address common audit findings, as well as how to work with clients to improve controls and plan operations to prevent further deficiencies and maintain operational compliance with the terms of the plan.

During the event, Diane was joined by Ian Dingwall from the Department of Labor as well as a variety of other speakers.


Investment Policy Statement for Employee Benefit Plans

 Permanent link

April 30, 2015

Finney_DeniseBy Denise Finney, CPA

Top Employee Benefit Plan Tips for May

May provides a perfect opportunity to evaluate and review your employee benefit plan’s investment policy statement with the plan’s investment advisor.  The plan’s first quarter investment performance results are available by now and the plan’s investment advisor is eager to meet with plan fiduciaries to discuss the results. 

If your employee benefit plan does not have an investment policy statement, you “May” be (pun intended) asking yourself, why should we have an investment policy statement (“IPS”)?  As a plan fiduciary, you are responsible for diversifying plan investments.  An IPS is a road map that provides plan fiduciaries with criteria and procedures for selecting, monitoring, and evaluating investment options and investment performance.  It also describes ways to address investment options and investment managers that fail to satisfy established objectives.  Overall, the IPS provides guidelines and support for crucial investment related decisions made on behalf of the plan. 

Once established, the IPS should be monitored and reevaluated on a regular basis.  In addition, the IPS should be compared to the plan document to ensure they are in alignment.  Now that you have established policies and procedures in place, don’t forget to document the investment decisions made on behalf of the plan.  One way to do so is to maintain minutes of all meetings held.

Recap of Top Employee Benefit Plan tips for May:

  • Meet with the plan’s investment advisors to review the plan’s investment performance
  • Discuss implementing an investment policy statement 
  • Monitor and reevaluate the investment policy statement
  • Document investment decisions made on behalf of the plan

Do April Showers Bring May Plan Auditors?

 Permanent link

March 31, 2015

Finney_DeniseBy Denise Finney, CPA

Top Employee Benefit Plan Tips for April

Did you know April showers bring May plan auditors? It’s true. After the April 15 tax deadline, plan auditors will be ready to go full force into pension season. This makes April a great time for plan sponsors to coordinate with their plan auditors and third party administrator’s (“TPAs”) for the upcoming plan audit.

The keys to a successful plan audit experience are planning and communication and planning. Best practices include:

  1. requesting a list of information needed from your plan auditor,
  2. scheduling a brief conference call with those involved in the plan audit process,
  3. determining when and how information will be available and
  4. scheduling the plan audit based on a realistic timeframe. 

When reviewing the request list of information needed, determine which items the TPA will provide and assign plan sponsor personnel to prepare and provide other items. And ask the TPA and plan auditor if they have secure portals to obtain and provide audit information. These portals help avoid lost emails, track document request and information provided.  

So, to recap:

  • Plan ahead and communicate
    • Who – Plan auditor, TPAs, and plan sponsor
    • What – Detailed information request from plan auditors
    • When – When will the information be available and what is the typical turnaround time for additional requests?
    • Where – Where is the location of the information? 
    • How – The method used to access the information. Access to portals?

How Long Do You Need to Keep Your Plan Documents?

 Permanent link

March 16, 2015

Alwardt_PeterBy Peter Alwardt, CPA
One of the questions we frequently receive from clients is how long they have to maintain plan records. Sadly, you may not like the answer.
Recently, the IRS issued a reminder on this very topic. They have indicated that plan sponsors of SEPs, SIMPLE IRAs, 401(k)s, profit sharing plans and defined benefit plans, as well as ESOPs and money purchase and target benefit plans must retain a variety of plan documentation until the plan has paid ALL benefits AND the statute of limitations for IRS audit has expired, which is generally 3 years. So, essentially, plan sponsors must keep all documents for the duration of the plan and then for the following three years.
The following documents must be retained:

  • SEP Plans – Form 5305-SEP or 5305A-SEP should be retained as your plan document.
  • SIMPLE IRA Plans – Form 5304-SIMPLE or 5305-SIMPLE should be retained as your plan document.  
  • Profit Sharing, 401(k), Defined Benefit and Other Types of Plan – The plan document, adoption agreement (if applicable) and all plan amendments should be retained as your plan document.

Additionally, sponsors must also retain all trust records and participant statements. Actuarial statements and calculations, where applicable, should also be retained. Sufficient records need to be maintained to prove that participants received the correct benefit under the terms of their retirement plan.
With the movement toward paperless technology, retaining these documents in perpetuity should not be as difficult as it was back when we kept the plan data in large three-ring binders. Nonetheless, sponsors should take care to protect the vehicles that house the electronic plan data to ensure that it is available upon request from the IRS or Department of Labor.

EisnerAmper is an independent member of PKF North America.
PKF North America is an independent member of PKF International.