Accounting for Employee Benefit Plans - Cindy Lusk

1. A Global Reach with a Local Perspective
www.decosimo.com
Accounting for Employee Benefit Plans
Cindy Lusk, CPA, RPA | Assurance Manager
July 2014

2.  Large plans
 100 participants, as of beginning of plan
year
 80/120 rule
 Certain plans are exempt
 Funded by premiums paid by employer
 Allocated insurance contracts
See 5500 instructions for more information.
Plan Audit Requirements

3. Usually include:
 Determination of eligibility and enrollment
 Providing timely and accurate date of birth, hire and
termination to the recordkeeper
 Remittance of contributions and loan repayments
 Setup of loan repayments
 Changes in deferral rates
 Discontinuance of participant contributions
 Distribution of required plan notices
Plan Sponsor Responsibilities

4. The Department of Labor has a Reporting and
Disclosure Guide for Employee Benefit Plans that is
available on their website.
http://www.dol.gov/ebsa/pdf/rdguide.pdf.
Reporting and Disclosure Requirements

5. Major components of plan financial statements
include:
 Investments
 Investment income
 Contributions
 Distributions
Plan Financial Statement Components

6.  Certified trust statements
 Assets may be excluded from certification
Investments

7. Certified Investments
Excerpt from AICPA’s Audit and Accounting Guide for Employee
Benefit Plans:

8. Statement on Standards for Attestation Engagements
No. 16, Reporting on Controls at a Service Organization
 User or entity control considerations
 Services carved out
SOC 1 Reports

9.  Payroll reports
 Certified trust statements
 Reports from recordkeeper
 Form 5500
Reconciliations

10.  Eligibility for participation
 Definition of compensation
 Common errors
 Timely remittance
 True-up provisions
 Example of match
401(k) Plan Fix-It Guide: http://www.irs.gov/pub/irs-
tege/401k_mistakes.pdf
Contributions

11. Example of employer match

12.  The Department of Labor requires plan sponsors to
deposit deferrals to the plan as soon as the funds
can be segregated; however, in no event later than
the 15th business day of the following month.
 The 15th business day isn’t a safe harbor!
 If you have a small plan, the DOL provides a 7
business day safe harbor rule for employee
contributions to small plans (fewer than 100
participants). There is no safe harbor for large plans.
Timely Remittance of Contributions

13.  Consult Rev. Proc. 2013-12 to determine if the error may
be corrected under either the Self Correction Program
(SCP) or Voluntary Fiduciary Correction Program (VFCP).
Available at: http://www.irs.gov/pub/irs-drop/rp-13-12.pdf
 Note that there are fees associated with correction under
VFCP
 Correction typically includes remitting the contributions
with lost earnings.
 A lost earnings calculator is available at:
http://askebsa.dol.gov/VFCPCalculator/WebCalculator.as
px
 Correction may also require Form 5330 to be filed with an
excise tax payment
Prohibited Transactions

14.  Accurate census information
 Vesting
 Forfeitures
 Types of distributions
 Hardship distributions
 Outstanding checks
 Partial plan terminations
Distributions

15.  The distribution is not greater than the amount of the
immediate and heavy financial need, including the
amounts necessary to pay any taxes resulting from
the distribution;
 The employee has obtained all other distributions
and loans available under the employer’s plans; and
 The employee is not allowed to make elective
deferrals to the plan for at least six months after a
hardship distribution.
IRS Safe Harbor for Hardship Distributions

16.  Definition of plan compensation
 Eligibility requirements
 Plan entry dates
 Vesting provisions
 Types of employer contributions, required or allowed
 Permitted types of distributions and loans
Review Key Plan Provisions

17.  Plan operational failures
 Consult Rev. Proc. 2013-12 to determine if the error
may be corrected under either the Self Correction
Program (SCP) or Voluntary Fiduciary Correction
Program (VFCP). A copy of the revenue procedure is
available at: http://www.irs.gov/pub/irs-drop/rp-13-
12.pdf
 Consider consulting an ERISA attorney
 Fidelity bond
 Requirements
 Fidelity bond versus fiduciary liability insurance
Other Items to Note

18.  Field Assistance Bulletin No. 2008-04 provides
additional guidance on ERISA Fidelity Bonding
Requirements
 Available at: http://www.dol.gov/ebsa/regs/fab2008-
4.html
Fidelity Bond Requirements

19.  Basis of accounting
 Creation of a trial balance
 Adjusting entries
Plan Trial Balance

20. Excerpt from AICPA’s Audit and Accounting Guide for
Employee Benefit Plans (Auditor’s Report):
Management is responsible for the preparation and fair
presentation of these financial statements in
accordance with accounting principles generally
accepted in the United States of America; this includes
the design, implementation, and maintenance of
internal control relevant to the preparation and fair
presentation of financial statements that are free from
material misstatement, whether due to fraud or error.
Responsibility for Plan Financial Statements

21.  Comparative statement of net assets
 Statement of changes in net assets
 Notes to the financial statements
 Applicable supplemental schedules required by
ERISA and the Department of Labor
Financial Statements for DC Plans

22. Type of Audit:
 Limited Scope
 Full Scope
Auditor’s Report

23. Limited Scope Auditor’s Report Excerpt
Auditor’s Responsibility
Our responsibility is to express an opinion on these
financial statements based on conducting the audit in
accordance with auditing standards generally accepted in
the United States of America. Because of the matters
described in the Basis for Disclaimer of Opinion paragraph,
however, we were not able to obtain sufficient appropriate
audit evidence to provide a basis for an audit opinion.

24. Basis for Disclaimer of Opinion
As permitted by 29 CFR 2520.103-8 of the Department of Labor’s
Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974, the plan
administrator instructed us not to perform, and we did not perform,
any auditing procedures with respect to the information summarized
in Note X, which was certified by ABC Bank, the trustee (or
custodian) of the Plan, except for comparing such information with
the related information included in the financial statements. We
have been informed by the plan administrator that the that the
trustee (or custodian) holds the Plan’s investment assets and
executes investment transactions. The plan administrator has
obtained a certification from the trustee (or custodian) as of
December 31, 20X2, and 20X1, and for the year ended December
31, 20X2, that the information provided to the plan administrator by
the trustee (or custodian) is complete and accurate.
Limited Scope Auditor’s Report Excerpt

25. Disclaimer of Opinion
Because of the significance of the matter described in the
Basis for Disclaimer of Opinion paragraph, we have not
been able to obtain sufficient appropriate audit evidence to
provide a basis for an audit opinion. Accordingly, we do not
express an opinion on these financial statements.
Limited Scope Auditor’s Report Excerpt

26.  Basis of accounting
 Use of estimates
 Risks and uncertainties
 Investment valuation and income recognition
 Method for determining participant contributions and basis for
determining employer contributions
 Notes receivable from participants
 Payment of benefits
 Income tax status of the plan
 Investments that represent 5% or more of plan assets
 Amount of unallocated assets
 Fully benefit responsive investment contract information and
related party transactions
 Brief description of the plan, including, vesting and allocation
provisions and the disposition of forfeitures
Financial Statement Disclosures

27. Excerpt from AICPA’s Audit and Accounting Guide for
Employee Benefit Plans:
Reconciliation to Form 5500

28. Investment Disclosures

29. Investment Disclosures

30. Required by ERISA, if applicable:
 Schedule of assets held for investment purposes at
end of year,
 Schedule of delinquent participant contributions and
 Schedule of reportable transactions.
Examples of the format and content of these schedules
are included in the instructions for the Form 5500.
Supplemental Schedules

31. Questions?

32. Cindy Lusk, CPA, RPA
Assurance Manager
cindylusk@decosimo.com
423-756-7100
Contact the Subject Matter Expert
Cindy has specialized experience performing employee benefit plan audits. A significant
portion of her career has been dedicated to auditing plans ranging in size from 100 to
35,000 participants with assets up to $548 million. She is committed to helping her clients
meet their fiduciary responsibilities and fully understands the latest laws and regulations
concerning benefit plans. To maintain her understanding of benefit plan compliance, Cindy
attends the American Institute of Certified Public Accountants (AICPA) conference on
employee benefit plans and various seminars and webinars.