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!

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…

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 »

The Pension Protection Act of 2006 includes provisions to encourage sponsors of 401(k) plans to automatically enroll eligible plan participants. This differs from previous requirements in which plan administrators would have to send out multiple requests each year, for eligible plan participants, and wait for them to hopefully respond. 

The automatic enrollment mechanism will allow the plan administrators to take out a specific pretax contribution percentage once the employee becomes eligible, unless the employee opts out. 

The Act also explains that the employee’s initial contributions into the plan will be deposited into certain default investment options, if the employee does not complete the necessary paperwork in the appropriate amount of time.  On October 24, 2007, the DOL published a final rule establishing qualified default investment alternatives, making it easier for employers to automatically enroll workers in their 401(k) and other defined contribution plans. 

Further, the IRS issued proposed regulations in November of 2007 to implement automatic enrollment which described 2 types of automatic enrollment arrangements.  

For more information including a fact sheet detailing the rules, go to the DOL’s Web site at http://www.dol.gov/ebsa/regs, or contact us.