Employee relations create most of the operating headaches for a nonprofit organization. In fact, when a nonprofit finds itself in court, it usually is due to employee issues. Some nonprofits even incorrectly believe they are exempt from employment laws. In the next Funding Information Session on Tuesday, April 13th, (9 a.m. to 11 a.m.) Frank Sommerville will address:

• Applicability of employment laws to nonprofit organizations
• Employee vs. Independent Contractor
• Preventive measures to avoid employee issues
• Application of overtime pay
• Nondiscrimination laws
• Employee handbooks

Speaker:
Frank Sommerville is a shareholder in the law firm of Weycer, Kaplan, Pulaski, & Zuber, P.C. in Houston and Dallas, Texas. He holds a license as a CPA and he is also Board Certified in tax law by the Texas Board of Legal Specialization. He is a member of the American Bar Association, The State Bar of Texas, Dallas Bar Association, Christian Legal Society, and the TSCPA.

Fee: $30 for FIC members; $45 for nonmembers

Held at the Funding Information Center
329 South Henderson
Fort Worth, TX 76107

To register, click here.

Listed below are some additional controls that I believe are necessary for a sound control environment in an employee benefit plan (again this list is not intended to be all inclusive as the facts and circumstances of employee benefit plans vary):

1. Determine if employee deferrals comply with current regulations (See limitations at: http://www.irs.gov/retirement/sponsor/article/0,,id=151925,00.html)
2. Determine if employee deferrals comply with the Plan’s maximum percentage requirements, if applicable (controls should be in place to ensure that employees are not allowed to elect to contribute more than the Plan’s elected maximum percentage as indicated in the Plan Document)
3. Controls should be in place to ensure that contributions are submitted to the Plan in a timely basis (Determine the who and the when to make sure it happens as required by law). Key – Timing should not be in excess of the number of days it takes an employer to transmit payroll taxes
4. Knowledgeable personnel should review and approve all loans and distributions made from the Plan . This knowledgeable person has read and fully understands the Plan document and requirements contained therein.
5. For loan approval – Understand the plan requirements for the following: loan amount complies; interest rate in loan agreement complies; condition for loan.
6. For distributions – Understand the following:  distribution complies with plan provisions and ensure all necessary documentation is retained (specifically for hardship distributions); distribution request includes the appropriate amount and the accurate amount of withheld taxes (10% and possibly an additional 20% if early distribution); ensure the appropriate vested percentage is utilized for employer contributions; determine if distributions required by law (required minimum distributions, etc) were completed during the year.

I hope the information is helpful in establishing a sound control environment for your organization’s employee benefit plan.  If there are areas that I have missed feel free to leave a comment to help out the other readers.  The controls that I have listed are coming from an auditor’s point of view and you may have insights related to your field of expertise that could be beneficial to others!

Recently one of our clients asked the following question: “What should we (organization) do regarding employer-provided cell phones? Should we be taxing the employees through payroll (imputed income)? We have approximately 10 employees that we provide cell phones for. We believe they all use the phones for both business and personal use, but only I can say for myself how much is personal vs. how much is business. I understand that last year the IRS was going to make a major change in their requirements for personal cell phone use taxation on business provided cell phones, but I don’t know if they ever did. What should we be doing?”

This is a very common question for all organizations, not just tax-exempt entities.

Here was my response for this very timely question: Read the rest of this entry »

To ensure a Plan Sponsor is fulfilling their fiduciary obligations related to the oversight of an employee benefit plan I have listed some of the internal control matters that should be addressed (please note this is not an all inclusive list as facts and circumstances of each Plan vary):

1. Ensure all user control considerations included in the third party administrator’s (record-keeper, trustee, custodian, etc) Type II SAS 70 are in place at the Plan Sponsor
2. Analyze compliance testing results provided by the third party administrator and if the Plan failed any tests ensure that corrective action is taken in a timely manner (distributions or additional contributions to the Plan as necessary)
3. Determine if established internal controls are designed appropriately to catch errors or fraud that may occur during the processing of transactions related to the Plan. Consider conducting a brainstorming session with individuals involved in the Plan in determining what could go wrong and then determine if controls currently in place are adequate to address such risks.
4. If the census is prepared by the Plan Sponsor ensure that the total wages included in the census reconciles with the organizations payroll records (remember census must include all employees that received a paycheck during the year whether employed by the organization or not during the year); the census should also be reconciled with the record-keeper statements (employee contributions, employer contributions and loan repayments). Key point – A reconciled census that agrees with the Plan Sponsors audited financial statements and the record-keeper statements will save time and money during a benefit plan audit
5. Controls should be in place to ensure all information included on the participant statements (social security #, name, compensation, date of birth, date of hire and date of termination) is complete and accurate.  Inaccurate information could lead to:

• Allowing individuals to enter the plan when they were not eligible to do so or not allowing an employee into the plan that is in fact eligible.
• Inaccurate amounts being withheld for employee contributions and/or employer matching contributions.
• Inaccurate amounts being withheld or forfeited when an employee receives a distribution (early distribution tax penalties or issues related to utilizing the appropriate vesting percentage for employer contributions)

     6. Determine if the annual Form 5500 reconciles to the Plan’s financial statement’s

 Interested in refining your internal controls for benefit plan recordkeeping. More will come in a later blog post…

A Chronicle of Philanthropy survey has found that nearly 3 in 10 of the leaders of the nation’s largest charities and foundations have taken pay cuts in the past year due to the recession. The Chronicle studied compensation at 325 large nonprofit organizations. In 2008 nonprofit executives saw a sharp increase in pay as opposed to a sharp drop in pay for for-profit executives. A lot of organizations are not cutting or freezing executive pay for fear that the executive will leave or not considering how the downturn in the economy will impact them. If an organization is struggling in the economic downturn and the executive is receiving pay raises, it could send a mixed message to donors.

The above is a summary of an article titled “Nearly 30% of Nonprofit Leaders Took a Pay Cut This Year; Pay in 2008 Grew Quickly” from The Chronicle of Philanthropy authored by Noelle Barton and Ben Gose, which can be found at the following website: http://philanthropy.com/free/articles/v21/i22/22000107.htm.

The IRS recognized the need for transition relief related to information included in Form 5500 by some 403(b) plans. It was noted that some of the filings would be rejected under ERISA because the filing would be incomplete due to the administrator’s inability to identify all participant contracts and accounts that should be included in plan assets. The filing would also be rejected if the audited financial statements contained an adverse, qualified or disclaimed opinion (other than disclaimers related to limited scope audit provisions in 29 C.F.R. 2520.103-8 or 103-12).

Administrators of 403(b) plans do not need to treat annuity contracts and custodial accounts as part of the employer’s plan assets for purposes of ERISA’s annual reporting requirements (further, the employer is not required to count the individual as a participant under the plan for Form 5500 reporting purposes) provided that:

1. The contract/account was issued to a current or former employee before 1/1/09
2. The employer ceased to have any obligation to make contributions and has ceased making contributions to the contract/account before 1/1/09
3. All of the rights and benefits under the contract/account are legally enforceable against the insurer or custodian by the individual owner without any involvement by the employer
4. The individual owner of the contract account is fully vested

The Department will not reject a Form 5500 on the basis of qualified, adverse or disclaimed opinion if the accountant expressly states that the sole reason for such an opinion was because such pre-2009 contracts/accounts were not covered by the audit or included in the plan’s financial statements.

The above information obtained from Field Assistance Bulletin 2009-02.

In December 2008, President Bush signed The Worker, Retiree, and Employer Recovery Act of 2008 into law. The law waived the required minimum distributions for 2009 from IRAs and employer sponsored defined contribution requirement plans because of the large drop in the stock market and declining retirement values.

Generally, a required minimum distributions is an annual amount that must be withdrawn from an IRA or an employer sponsored plan beginning with the year the account owner reaches 70 ½.

The IRS said that in many cases, because the law was signed so late in the year, and many individuals and plan sponsors were confused about how to comply with the new rules, IRA owners and plan participants received distributions they were not required to take or did not want.

Retirees who made a withdrawal from an IRA, 401(k) or other qualifying retirement plan have until 11/30/09, or within 60 days of the distribution, whichever is later) to put the money back in the plan tax-free.

Notice 2009-82 assures plan administrators that Read the rest of this entry »

Final regulations that were adopted in 2007 take effect on January 1, 2009, for most tax-exempt organizations. 

What changed? How is your T-E organization affected?

The final regulations require all 403(b) providers, including churches, to have a plan document in place no later than 12/31/08. Failure to adopt a written plan before 1/1/09 will render all subsequent contributions to the plan to be fully taxable. The plan document must address several issues, including: Read the rest of this entry »

The American Society of Association Executives (ASAE) published the following information in a recent alert to members. This should be of high interest to all tax-exempt organizations.

Sen. Chuck Grassley (R-IA), ranking member of the Senate Finance Committee, has filed two amendments to the health care reform bill introduced by Senate Finance Chairman Max Baucus (D-MT) that directly impact tax-exempt organizations. These amendments were filed along with more than 500 others before the end of last week, and are being considered in the markup of the Baucus bill that got underway Sept. 22.

Read the rest of this entry »

Having that “bad apple” in your workplace can be very distracting if not destructive.  So in response, candidates are run through an exhaustive process of evaluation.  This process may not be the most productive method for measuring an employee’s emotional intelligence. If you want to pick good apples without hoping they fall from the tree, consider the following:

• Is the candidate self-aware and self regulated- you cannot have a loose cannon who does not understand how to control anger or anxiety.
• Is the candidate able to read others and see others’ reactions to their behavior- this can be defined as a social “radar”.
• Can the candidate learn from mistakes made- this is the best way to judge how a person responds to adversity.

Here is a short list of effective questions to detect the prospect’s emotional intelligence:

• Tell me about a conflict you had with a peer or supervisor, and how it started and became resolved?
• Tell me about a time you said or did something that had a negative impact on a peer, supervisor, or customer. How did you know the impact was negative?
• Tell me about a situation when you discovered that you were on the wrong track.  How did you recognize this, what did you do, and what did you learn?

If this approach interests you, see Adele Lynn’s book The EQ Interview: Finding Employees with High Emotional Intelligence.