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The Compensation and Benefits Blog

Do April Showers Bring May Plan Auditors?

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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?

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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.

Top Employee Benefit Plan Tips for March

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March 3, 2015

Finney_DeniseBy Denise Finney, CPA

With spring right around the corner, it’s time to dust off those plan reports.  For December 31 plan year-ends, your plan’s non-discrimination test should be completed and action should be taken to correct any testing failures.  Custodians and recordkeepers are gathering information to provide you with your plan’s year-end reporting package, which generally includes reports such as the following:  Trial Balance; Plan Activity by Fund; Plan Activity by Participant; Contributions by Type (employee, employer, rollover), by Participant and by Pay Period; Schedule of Distributions by Participant; Summary of Loan Activity by Participant; Schedule of Expenses; Certification Statement (for limited scope audits) and the Service Organization Control 1 Report (SOC1).
Now that you have the test results and reporting package, see below for some tips that’ll put some spring in your step!

Top Employee Benefit Plan tips for March:

  • Review non-discrimination testing prior to March 15 and correct any failures. 
  • Review final year-end reports (audit package).  
  •  Does the total of participant’s accounts equal total plan assets?
  • Are distribution amounts reasonable and is the corresponding account balance reduced to $0?
  • Are loans are being repaid (any delinquent loans)?
  • Do contributions agree with company records (payroll, etc.).
  • Are plan earnings reasonable?
  • Are plan investments valued at fair market value?

Late Remittances CONTINUE to be a Problem

(Defined Contribution Plans) Permanent link

January 8, 2015

DeAngelo, KristeBy: Kriste Naples-DeAngelo, CPA, MBA

Late remittances of employee contributions to retirement plans continue to be an ongoing issue for Plan Sponsors.  The general rule is that amounts that a participant pays to their employer or which has been withheld from their pay, must be contributed to the plan on the earliest date that those contributions can be reasonably segregated from the employer’s general assets.
For instance, most employers routinely submit payroll taxes withheld from employee paychecks as early as 1-2 business days or even the same day. The Department of Labor (DOL) has taken the position that if the payroll taxes can be remitted in that timeframe, so should retirement plan contributions.

What continues to confuse many Plan Sponsors is that this general rule also says that the maximum time period for transmitting these employee contributions shall in no event be later than the 15th business day of the month following the month in which the participant contributions are received by the employer. THIS IS NOT A SAFE HARBOR and therein lies the confusion.

When contributions are remitted beyond the “reasonable” timeframe, this is considered to be a prohibited transaction, which must be reported on Form 5500 and also in the Plan’s financial statements. Plan Sponsors should take this very seriously, since the DOL views this as a loan to the employer from the plan.

To correct a late remittance, the Plan Sponsor is required to make the affected participants’ accounts whole and put in the position as if the remittance was timely.  Therefore, the Plan Sponsor must provide the plan with lost interest. The interest amount may be calculated using an on line calculator provided on the DOL website.   This calculation can be extremely burdensome and take a considerable amount of time if there are several remittances that are considered to be remitted beyond the “reasonable” time period.  The result often times is a very small amount.  Nonetheless, there is no material or minimum amount whereby a correction would not be appropriate. 

My recommendation to Plan Sponsors is to document your remittance process and determine the earliest date that you believe these contributions can be reasonably segregated from the general assets. Then, most importantly, ensure that you follow what you documented.  I also recommend checking the remittance dates throughout the year to ensure that you are meeting your documented expectations. Remember…anything outside your expected timeframe may be considered a late remittance by the DOL and should be voluntarily corrected.


Annuities in 401(k) Plans?

(Defined Contribution Plans) Permanent link

November 25, 2014

By Diane Wasser, CPA

Wasser_DianeThe number of baby boomers retiring over the next several years is mind boggling.  The amount of retirement plan distributions related to such retirements, along with the number of people that will be living on retirement income, is equally mind boggling!  Therefore, an annuity distribution option in a 401(k) plan is an interesting thought.  Historically, such an option in a defined contribution plan was rarely a subject of discussion. 

Due to recent action, however, we may see many plans offering an annuity distribution option in cases where the plan document provides for automatic enrollment.  Specifically, the U.S. Treasury Department recently issued guidelines to encourage annuities in 401(k) plans.  The guidance is in Notice 2014-66, and notes plan sponsors can include deferred income annuities in target date funds that are used as a default investment and that such can be done in a manner that complies with plan qualification rules.  This even can be accomplished, according to the Notice, if such is available only to older participants.

Essentially, this offers participants an option that reduces the risk that they outlive their retirement benefits, which is a concern of many given the rises in life expectancy and the uncertainty of the markets.  It is certainly an interesting concept--I think we will be hearing more and more about the specific aspects of such a plan provision.

When Does a Benefit Plan Have to File with the SEC?

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November 14, 2014

By Denise Finney, CPA

Finney_DeniseDoes your defined contribution plan offer employer securities as an investment option?  If so, the plan may be subject to additional filing requirements with the Securities and Exchange Commission (“SEC”).  In general, if employees are given the option to acquire employer securities with their own contributions, additional filings are required with the SEC.  

Form S-8, a registration statement under the Securities Act of 1933, should be filed by the employer to register the employer securities to be acquired under the defined contribution plan.  Form S-8 is updated each year by filing Form 11-K.  Annual reporting on Form 11-K requires an audit in accordance with Public Company Accounting Oversight Board (“PCAOB”) standards.

Plan sponsors should consider the additional SEC requirements in conjunction with their reporting requirements under Form 5500 with the Department of Labor (“DOL”) and Internal Revenue Service, as shown below. 

  SEC Requirements DOL Requirements
Audit Opinion Must not reference GAAS*
Must reference PCAOB
Must Reference GAAS*
Scope of Audit Full scope audit required Limited or full scope audit may
be acceptable
Return due dates
(for 12/31/14 plan year)
Form 11-K due 180 days after
year-end (6/29/15)
Form 5500 due 7 months after
year-end (7/31/15), extended
another 2 1/2 months (10/15/15)


  * GAAS refers to Generally Accepted Auditing Standards

Because of the differences noted above, sponsors of plans requiring SEC reporting will routinely hire an independent public accounting firm to perform a full scope audit, and prepare two separate audit opinions with a target audit completion date of the end of June. 

Tax-Deferred Stock Rights for Offshore Funds

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October 15, 2014

By Peter Alwardt, CPA

Alwardt_PeterUnder Revenue Ruling 2014-18, the IRS has clarified that offshore funds (and other nonqualified entities under Section 457A) may issue nonqualified stock options and stock-settled Stock Appreciation Rights (SAR) without triggering taxation under Section 457A. Prior to this ruling, certain deferred compensation was includible as taxable income of an employee or service provider. This discouraged U.S. based fund managers and service providers from deferring incentive fees from their offshore funds.

The ruling provides a clear fact pattern for a service provider to receive incentive fees on a tax-deferred basis utilizing stock options or stock settled SARs. For more details on the revenue ruling and its impact on compensation from offshore funds, please visit our recent benefits alert here.

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