EisnerAmper Blog

The Compensation and Benefits Blog

Pension Funding Relief

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September 4, 2014


By Peter Alwardt, CPA

Alwardt_PeterIn 2012, the Moving Ahead for Progress in the 21st Century Act (MAP-21) allowed sponsors of defined benefit plans to smooth out their minimum funding requirements. The initial act provided for a 10% funding stabilization corridor, which would reach 30% by 2016. Under the Highway Transportation and Funding Act of 2014 (the Act) which Congress passed and President Obama is expected to sign into law, the corridor will be extended until 2017.

The net effect of this change is to reduce the required minimum contributions for many defined benefit plans for plan years beginning in 2013 through 2017. If your plan has already had the actuary calculations prepared for 2013, you may elect to apply the new corridor beginning in 2014, so as not to have to redo all of the 2013 valuation work. Certain disclosure requirements have also been extended.

While plan sponsors may be relieved by the reduced funding obligations, be aware of higher contributions required when the funding stabilization corridor expires at the end of plan years beginning in 2017. For more details on the extension and its effect on plan sponsors, please visit our recent benefits alert titled Pension Funding Relief Under MAP-21 to be Extended Until 2017

408(b)(2) Disclosure Guides

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August 12, 2014
By Brenda DeSaro, CPA

DeSaro_BrendaAre you ready to go on a treasure hunt?!?  We are not looking for diamonds, gold or rubies. . .  No, we are looking for details necessary to fulfill the 408(b)(2) fee disclosures.  Are you able to find everything you need to satisfy those 408(b)(2) regulations?  Are you having problems complying with the regulations?  Do you need a map to find all of the disclosures?  Well you are not alone; there may be something in the future to help.

On March 12, 2014 the Department of Labor (“DOL”) proposed a regulation to require a guide (I like to refer to it as a “treasure map”) to assist plan fiduciaries in reviewing 408(b)(2) disclosures. 

The DOL has expressed concern that small plan fiduciaries may be having trouble locating the required details needed to assess the following:  1) if the amounts paid to service providers are reasonable and 2) identify any related parties involved.  These areas are just a few required in order to comply with their fiduciary obligation.  Out of this concern, the March proposal was released.

The proposal suggests a new section to the 408(b)(2) regulations “section 2550.408b-2(c)(1)(iv)(H), Guide to Initial Disclosures.”  Here are some of the highlights in the new section:

  1. The guide may NOT be needed if all of the required items are covered in a single document that does not exceed a certain number of pages.  The DOL has not defined what that magic number of pages will be, but is seeking comments of what would be an acceptable amount.
  2. In the 408(b)(2) regulations, there are covered disclosures that must be communicated to the plan fiduciary.  In the DOL fact sheet, they are listed as:
    • “The description of services to be provided;
    • The statement concerning services to be provided as a fiduciary and/or as a registered adviser;
    • The description of: all direct and indirect compensation, any compensation that will be paid among related parties, compensation for termination of the contract or arrangement, as well as compensation for recordkeeping services;
    • The required investment disclosures for fiduciary services and recordkeeping and brokerage services, including annual operating expenses and ongoing expenses, or if applicable, total annual operating expenses.”
  3. The treasure map needs to identify where to find all the covered disclosures in the other documents.  This guide must list each covered disclosure, which document it is in by title, then page number and section if given.
  4. The guide must be a separate document given with the initial required disclosures.
  5. Any updates or revisions to the guide must be given at least annually.

Remember: At this time, this is just a proposal and not yet in effect.  However, from this proposal, we can see the DOL wants to make it easier for plan sponsors to be able to find the proper disclosure documents.

Office of Inspector General for the DOL Issues Inquiry Letters to Some Plan Sponsors

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August 1, 2014

By Robert Reilly, CPA

Reilly, RobertRecently, the Office of Inspector General (“OIG”) at the U.S. Department of Labor published its Office of Audit FY 2014 Workplan.    Working toward one of the OIG’s goals of safeguarding and improving worker and retiree benefit programs, a number of initiatives were disclosed in the Workplan.   One such initiative is to determine the extent financial institutions that are exempt under the limited-scope audit provision of the Employee Retirement Income Security Act (“ERISA”) have accountability and control over the assets they certify. 

ERISA’s limited-scope audit exemption provides an exclusion from the audit for investments and plan-level investment activity if a qualifying institution, such as a bank or similar organization holding the assets, certifies to the accuracy and completeness of the investment information.  This certification extends only to “ordinary business records” of the certifying institution.   As plan assets continue to include harder to value investments such as hedge funds, private equity and venture capital, it is becoming more important than ever for plan sponsors to have a formal investment pricing policy, oversight and monitoring of investment valuation, as well as to understand what the certifying entity is actually certifying.

Clearly, the OIC is concerned about the investment information included in these certifications and is focusing resources on this issue.   In fact, the OIG has already started sending out letters to some plan sponsors requesting information about the certification and plan sponsors’ investment valuation procedures.

Where Are Your 401(k) Plan Documents?

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July 9, 2014

By Denise Finney, CPA

Finney_DeniseIf someone asked you, as one of those involved with management of your company’s defined contribution plan, to provide a copy of the 401(k) plan document and related amendments, would you know where to find them?  All too often plan sponsors are unable to locate the current version of their 401(k) plan documents and amendments.   Frantically, they scour their files, emails and folders for the documents, only to find multiple versions of what looks to be similar documents which are unsigned and therefore lacking formal execution.  In other instances, the plan sponsor will even be unable to secure a signed and executed version from the company who assisted them with the implementation of the plan.

As a plan sponsor, it is paramount to maintain a complete copy of the signed plan documents and all related amendments for all of your defined contribution and defined benefit plans.  A common mistake observed by the Internal Revenue Service is unsigned plan documents, which can lead to penalties being accessed on the plan sponsor. Thankfully there are ways to fix this mistake, so avoid delay!  The time to determine if you have all of your plan’s documents is now. 

Are You Sure Your Plan Sponsor is Tax-Exempt?

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June 4, 2014

Wasser_DianeBy Diane M. Wasser, CPA

Do you sponsor a 403(b) plan?  If so, you’d better be sure the employer organization is (still) a tax exempt organization or a 501(c)(3).  A not-for-profit organization must file the appropriate Form 990 series (“Return of Organization Exempt from Income Tax”) at least once within a consecutive three-year period.  Without such filing, the IRS automatically revokes the employer’s tax-exempt status. Federal tax-exempt status can be reinstated if the organization applies to the IRS and is able to show there was reasonable cause for not timely filing the Form 990 series.  Here is an excerpt from the Form 990 instructions:

Automatic revocation for nonfiling for three consecutive years. The law requires most tax-exempt organizations, other than churches, to file an annual Form 990, 990-EZ, or 990-PF with the IRS, or to submit a Form 990-N e-Postcard to the IRS. If an organization fails to file an annual return or submit a notice as required for three consecutive years, its tax-exempt status is automatically revoked on and after the due date for filing its third annual return or notice. Organizations that lose their tax-exempt status may need to file income tax returns and pay income tax, but may apply for reinstatement of exemption.

What Is a Wrap Plan and Why Should I Care?

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May 15, 2014 
Faris, ChristineBy Christine Faris, JD

Your company may be familiar with Employee Retirement Income Security Act (ERISA) of 1974 as it relates to 401(k) and other retirement plans, but may not be aware that ERISA also applies to other types of benefit plans.  Employee welfare benefit plans, such as medical, dental, life insurance, etc. are also subject to the requirements of ERISA.  As with retirement plans, ERISA requires each benefit plan have a written plan document that contains specific elements, and that a summary plan description (SPD) for each benefit plan be provided to each participant in that plan.  (The insurance contract or policy for the benefit does not meet ERISA’s requirements of a plan document and SPD.)  Assuming the insurance contract or policy is sufficient for purposes of ERISA may expose  the company and plan’s fiduciaries to unnecessary risk.  In addition, ERISA requires the company to file an annual Form 5500 for each benefit plan.  The more benefit plans a company offers, the more plan documents and DOL requirements it will have.

A simple method to improve legal compliance with ERISA and minimize administrative responsibilities is to combine the individual benefit plans under a wrap plan.   Wrap plans are legal documents that combine all group insurance policies and contracts of a plan sponsor into a single plan and contain pertinent provisions required by ERISA. Adoption of a wrap plan means that your company is only required to file one Form 5500, rather than multiple forms for each welfare benefit.  A significant advantage of the wrap plan is that it reduces administrative costs by reducing the number of Forms 5500 that must be filed, and consequently reduces the risk of a late or missed filing and the associated penalties. 

DOL has informally indicated that it will be looking for Forms 5500 for welfare benefit plans for companies that filed a Form 5500 for a retirement plan with more than 100 participants.  As a result, it is more critical than ever for companies to review their plan documents and Form 5500 filing requirements to ensure ERISA’s requirements are met.

Sound interesting? Read “Wrap Plan Document for Welfare Plans”  to find out what you need to know regarding wrap plan documents.


Defined Benefit Plan Hidden Risks

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April 28, 2014

Wuensch,JenniferBy Jennifer Wuensch, CPA

There are various risks that come with sponsoring a defined benefit plan, including market volatility and liability risk. There are also operational risks which can result in operational defects, inaccurate data and miscalculated benefit obligations.

Most plan operations are outsourced to third-party service providers and with this significant outsourcing, plan governance and internal controls are often ignored. Third-party service providers take away the stress of day-to-day plan management, but plan sponsors cannot outsource ultimate responsibility for the plan and its operations. Most problems and defects in plan operations occur from lack of oversight and lack of attention to governing documents and service agreements. Plan sponsors should make every effort to understand plan provisions, limit reliance on third-party service providers, understand what data is necessary to be tracked and how benefits are calculated, assure actuaries have accurate data, and manage data transfers. The accuracy and validity of the actuarial analysis is dependent upon the quality of the data used. Actuaries use professional judgment when determining whether and how to refine data or make modifications within the analysis based upon the accuracy of the data.

For plan sponsors to focus on reducing risk in plan governance, it’s imperative that plan records are available, organized, accurate, and complete. Complete records should contain all participants as well as all demographic and benefit-specific provisions needed to determine eligibility, vesting, and ultimate benefits due.  The plan sponsor should maintain an executed version of the current plan document, all plan amendments, and current service agreements with third-party service providers.

Plan sponsors will greatly benefit from a “self-audit” to review different aspects of their plan to ensure that they are operating in accordance with the plan document. In a self-audit, plan sponsors or accountants/third parties review the overall policies and procedures of the plan compared to the plan document, test overall plan activity, and spot-check specific transactions. By performing a self-audit, plan sponsors can be proactive regarding any errors and confident in the accuracy of obligations, and prepare themselves appropriately for an IRS or DOL investigation. A self-audit can include assessing the accuracy and completeness of actuarial census data, recalculating a sample of benefit payments, and analyzing a selection of specific participants from the actuarial census to determine the accuracy of demographic data, annual compensation, location, position, and union status.

These steps serve to assist plan sponsors in reducing the risks that accompany plan sponsorship.


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