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…

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 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.