A Sage Look at Employee Benefit Plans
July 29, 2019
In this podcast, Partner-in-Charge of EisnerAmper’s Pension Services Group Diane Wasser talks about today’s many complex challenges facing employee benefit plan administrators. Diane also shares her time-tested guiding principles, the current state of the pension sector, and a pair of real-life case studies.
DP: Good. Thanks for being with us. Let's first jump into the challenges that really set the stage for our plan administrators when they're trying to effectively manage a plan. What are they up against?
DW:What they're up against initially is many sets of rules from multiple regulatory bodies. We have the Department of Labor, the Internal Revenue Service, if it's a defined benefit plan, the Pension Benefit Guarantee Corporation (PBGC) and certain plans have filing requirements with the SEC. So there's many forms of oversight. I think that coupled with a complete misconception that third parties do absolutely everything for a plan sponsor employer is a very dangerous mixture.
DP: Okay, so a lot of the alphabet soup problems that we run into in a lot of the areas.
DW:Correct. Lots of cooks in the kitchen.
DP: Now, you as someone who has successfully advised clients in this area for many years, you've come up with some guiding principles. Tell us about those.
DW: I start by saying that there are legal responsibilities under ERISA for plan fiduciaries, and plan fiduciaries have the responsibility to act solely in the best interest of the participants. Pay only reasonable expenses, diversify investments, carry out their duties prudently and follow plan documents. That's the part where we as auditors get involved in the most is following the plan documents and consulting our clients to follow the plan documents as closely as possible. When I say follow, I'm being generous, I'd have to honestly, sadly say read them.
DP: Now tell us about you, your role as a plan advisor. What types of companies do you work with? What tools do you have in your toolbox so to speak?
DW: All types of companies. Actually, we range from 10 participants to 60,000 participants in plans that we consult with in audit. Only plans that have more than a 100 eligible participants at the beginning of a plan, your need an audit to be attached to their federal Form 5500 filing. However, more and more we have small plans reaching out to us to ask us to assist them in seeing if they're running their plan properly. I would say what sets us apart is we take great pride in what we do and really understand the importance of retirement planning and having safe retirement plans to do that through. From my perspective here at EisnerAmper, we have a very diligent, thoughtful audit approach, or consulting approach if it's not in an audit scenario, and we provide value in what we do while also hitting all the risk areas that are very common in plans.
DP: Diane, why would, let's say a company come to you and not have an internal person who handles this? Why would they outsource to you?
DW:The main reason is because a CPA has to provide the audit opinion to be attached to the financial statements that go with the Form 5500. For, say, a small plan that may not require that audit, why would they come to us is because of our expertise and ability to benchmark them off of other plans. Not necessarily benchmark with numbers, but benchmark with best practices.
DP: And it might be more cost effective. They don't have to hire someone, pay them benefits, a salary, so forth.
DP: Okay, good. I just wanted to make that distinction. Now, put it in perspective for us. Can you share an interesting or informative case study for our listeners? Obviously without mentioning any names of course, but of a client who came to you with a unique problem, what you had prescribed, and what the outcome was.
DW: Certainly. Actually two things come to mind. I know you only asked for one, but I'll try to sneak in two. This is several years ago, but it still is prevalent now. We had a very large public company come to us because they had a vulnerability in how they set up their system to withhold money from employee’s paychecks and deposited into the actual plan. And they had written a program to do that, and pretty much then it was on autopilot. They realized that when they wrote the program, they forgot certain types of pay that should have been not only withheld upon but also matched upon from the employer's perspective. And it went back years and years so that they were in a position where they withheld money from employees, paychecks and held onto it and the general company assets and didn't put it in the plan. And the government really, really frowns upon that. There are lots of ways to fix that error and they did. They went back in time and made the plan whole and the participant's whole for all the funds that should have been put into the plan that that were withheld.
DP: Well, you bring up an interesting point. You talk about programs. Are you seeing a lot more of technology in this space where you now have to be part CPA and part IT person?
DW:Absolutely. Things are changing every year, especially in the area of HRIS. A lot of our clients are starting with human resource information systems and that takes away the little bit of paper that we used to have left as auditors so that poses a whole other dimension to the audit approach. And this company, you would think, oh its large public company. That's not us, but a plan sponsor may be thinking, but everybody has set up a system to withhold the money and deposit it. Now that, that's number one. So they were withholding on the right pay, they just weren't putting it in the plan. What I see as our number one concern that I would alert plan sponsors to is watching very closely the types of compensation provided for in the plan that are supposed to be used in contribution calculations. Because the number one thing we see is that the plan says what buckets of pay are to be withheld upon or matched upon. And something completely different is done in the daily operation of the plan, leading to under-contributions and under-withholding.
DP: Now, could there be a scenario where the company is not contributing to the plan either in the amounts or the way they should be and then they run afoul of the regulatory agencies and they could get fined for that?
DW: Yes. The end to answer is yes. However, the Department of Labor and the IRS have multiple means of correcting errors. They want the money in the plan. They'd rather them spend the time calculating the right money to put in the plan as opposed to fining them, but there are fines for withholding employee deferrals and not contributing them because then that's prohibited by the government because you're taking people's hard-earned money that they want to be in the plan and effectively keeping it in the company's bank account.
DP: Right and I'm just trying to establish that you're (a) primarily there to get it all right for them; but (b) to mitigate that financial risk if they get it wrong. That's good to know. From a macro level, Diane tell us about the state of the state of the pension sector. Any new regs on the horizon people should know about? What's going on in your world that's exciting?
DW:Exciting and benefit plans – that's interesting. An interesting thought. I would say from a regulatory perspective, there's always changes being discussed about plans. I think they get added on to bills and often are an oversight and can have great impact to plan sponsors. From an auditing perspective, in a few years audit reports of every type are going to change. I think it's for the 2020 calendar year ends. That will also have an added change impact on benefit plan. The auditor's report will be changing from auditors of companies and plans and also on top of that more changes for plan audit reports. And so that will affect us and every auditor because the opinion will be different. In addition to changing the wording on the audit opinion, there's going to be required procedures that are outlined by the government and those procedures will be highlighted mostly in the opinion. For us, it's not going to change that much because we have a very robust audit process, but for others it could be a challenge. Plan sponsors will see auditors asking for perhaps different information than they had in the past in order to make sure that they can comply with the new standard.
DP: Even more reason for a company to lean on their business advisers. You guys are the ones that know all the regs and what's coming down the road. The owner of a business, he or she can't spend all that time. They want to focus on what they do. So they let you focus on what you do and work the magic you work. Well thanks Diane for this valuable information.
DW:You are very welcome. This is fun. I'll do it anytime, Dave.
DP: Right on. And thank you for listening to the EisnerAmper podcast series, visit eisneramper.com for more information on this and a host of other topics and join our next EisnerAmper podcast when we get down to business.