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What to Expect in a Plan Audit. Presented By: Amper, Politziner & Mattia, LLP. Kriste Naples-DeAngelo, CPA, MBA, Partner Brenda DeSaro, CPA, Manager, Pension Services Group Diane M. Wasser, CPA, Partner-in-Charge, Pension Services Group. Is your plan an ERISA Plan?. IF YOU ARE UNSURE,

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What to Expect in a Plan Audit

Presented By:

Amper, Politziner & Mattia, LLP

Kriste Naples-DeAngelo, CPA, MBA, Partner

Brenda DeSaro, CPA, Manager, Pension Services Group

Diane M. Wasser, CPA, Partner-in-Charge, Pension Services Group

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Is your plan an ERISA Plan?



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Form 5500 Requirements (Prior to 1/1/09)

Current Form 5500 filing requirements (for those required):

Limited Pension Plan Reporting for “403(b) Arrangements”—Required only to complete general information section (Lines 1 through 6 and Line 8)

No Form 5500 schedules required to be completed

No financial statement or any financial information required to be submitted

No audit required


5500 is due 7 months after the plan’s year end

Extension available for 2½ months

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Form 5500 Filing Requirement(Beginning 1/1/09)

Form 5500 filings will be required for all 403(b) Plans covered by Title I of ERISA (as under previous rules)

They are now subject to the same 5500 annual return requirements

Even Plans with less than 100 participants must file Form 5500 and providefinancial information, at the Plan level, never provided before

No change on WHO should file Form 5500

Change only on WHAT should be filed with Form 5500

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Form 5500 Filing Requirement

Starting with the 2009 Form 5500 (effective for plan year beginning January 1, 2009)

1/1/09 (December year end)

7/1/09 (June year end)

Generally an excess of 100 eligible participants at the beginning of a plan year will require an audit

Eligible—BE CAREFUL!—includes all employees under theUniversal Availability rule and all former participants with account balances

7,000 403(b) audits, 9,000 small plans with additional financial information to report

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Form 5500 Requirements

80-120 rule applies in the initial 403(b) audit year

The Department of Labor advised in its Notice of Adoption of Final Forms Revision that 403(b) plans that were eligible to file as a small plan under DOL Reg. 29 CFR 2520.103-1(d) in the previous year and that have participant counts of fewer than 121 in the beginning of the 2009 plan year can file as small plans under the new filing rules

Plans with over 120 participants at the beginning of the year (01/01/09 for calendar year plans) will be required to attach audited financial statements to their 2009 Form 5500 filing

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Financial Reporting RequirementWHAT IS THE OBJECTIVE OF THE AUDIT?

To express an opinion on whether the plan’s financial statements are presented fairly, in all material respects, and in conformity with U.S. generally accepted accounting principles

The auditor is responsible to plan and perform the audit to obtain reasonable assurance that material misstatements are detected

Reasonable assurance is high, but not absolute

The audit is conducted in accordance with auditing standards generally accepted in the U.S.

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Financial Reporting Requirement WHAT IS THE OBJECTIVE OF THE AUDIT?

Generally accepted auditing standards among other things includes:

gathering information to understand the Plan and its internal control environment

understanding the design and implementation of internal control

detailed testing of a Plan’s accounts and transactions

gathering sufficient audit evidence

documentation of findings

The financial statements are the responsibility of Plan Management, the opinion is the auditors

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Financial Reporting RequirementWHAT IS AUDITED?

Two Basic Buckets (Investments and Participant Accounts & Activity)



Opening balance




Transfers in and out

Earnings allocations

Fund allocations


Ending balance

Timeliness of Contributions

Prohibited transactions

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Financial Reporting RequirementWHAT IS AUDITED?

Think in terms of the financial statement line items

Statement of Net Assets Available for Benefits:


Participant loans

Receivables (accrual basis)

Participant contributions

Employer contributions


Liabilities (not for benefits)

Accrued expenses

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Financial Reporting RequirementWHAT IS AUDITED?

Statement of Changes in Net Assets Available for Benefits:

Contributions (received and receivable)

Timeliness of deferrals


Gains and losses/appreciation and depreciation on investments

Investment income

Interest and dividends


Administrative expenses

Transfers/plan mergers

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Financial Reporting RequirementWHAT IS AUDITED?

The focus of the audit is on the material account balances and major transaction classes from which the statements are derived

Participant activity is a major transaction class

Opening balance, eligibility, demographics, contributions, vesting, distributions, transfers, rollovers, fund allocations, earnings allocations, ending balance

Focus on investments is driven by the audit scope

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Financial Reporting RequirementWHAT IS AUDITED?

Investments – Limited Scope or Full ScopeAudit

LimitedScope—assets are held by a bank, insurance company or trust company, and are certified as to completeness and accuracy

Custodians certify the information as contained in their ordinary books and records—If you have more than one custodian, you will need multiple certifications

Custodians generally provide values based on best information available

Watch “as of” dates for old information

Watch fair value

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Limited Scope (continued)

Auditor has no responsibility to test investments, investment activity and related transactions—(it is the Plan Sponsor’s responsibility to ensure that the investment values are proper)

Must consider applicability of the limited scope audit, given the circumstances regarding the availability of the information on prior contracts—(will be discussed further in presentation)

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Financial Reporting RequirementWHAT IS AUDITED?

Full scope—Audit investments, investment activity and related transactions

Confirm existence and ownership, assure no liens, no pledges or other security interests

Reasonably conclude investment transactions are recorded and investments are valued in conformity with GAAP (fair value)

Disclosures are proper

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Financial Reporting RequirementsFIRST YEAR CONSIDERATIONS

DOL requires comparative statements of net assets available for benefits

Will need 12/31/08 or 6/30/09 statement of net assets available for benefits, at a minimum, compiled

A compilation is less than an audit and a compilation report will be rendered

Must determine that the accounting principles used by the Plan in the current and preceding year are consistent

Must address the opening balances at the participant level

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Financial Reporting RequirementFIRST YEAR CONSIDERATIONS

Address completeness and accuracy of participant data & records

Address eligibility, types of benefits, participant account balances

Opening balances at the participant level

Essentially must address multiple prior years’ activity



Other plan activity

Going back in time presents a unique difficulty for 403(b) Plans given the possible recordkeeping shortfalls

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DOL Transition Relief

FAB (Field Assistance Bulletin) 2009-02 provides transition relief for those that make a good faith effort…… whereby, they do not need to treat annuity contracts and custodial accounts as part of the employer’s Title I plan assets and for purposes of ERISA’s annual reporting requirements

Must meet certain criteria

Contract was issued to a current or former employee prior to 1/1/09

Employer ceased to make any contributions (including salary reduction contributions) to contract or account prior to 1/1/09 (including loan repayments made by employer)

All rights and benefits under the contract are legally enforceable against the insurer to custodian by the individual owner without any involvement of the Employer, AND

The individual owner of the contract is fully vested in the contract or account

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DOL Transition Relief

Field Assistance Bulletin (“FAB”) 2009-02

Issued July 20, 2009

Provides guidance to DOL Field Offices

Provides Enforcement Relief for 5500 filings

Does not provide audit relief

DOL/EBSA will NOT reject a 403(b) plan form 5500 filing solely because the auditor’s report is qualified, adverse or disclaims an opinion (other than allowed under 29 CFR 2520.203-8) due to the exclusion of pre 2009 annuity contracts and/or custodial accounts

Regardless of the type of opinion issued, the auditor is still required to complete all other audit procedures (e.g. contributions, distributions, etc.)

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DOL Transition Relief

You can use this relief to determine audit requirement – if by omitting these contracts puts the plan below the audit requirement threshold, then an audit will not have to be performed

80-120 rule also applies in determining audit requirement so look at number of participants at 1/1/08

The FAB allows but does not require that contracts/accounts be excluded

The FAB also applies to years beyond 2009

ERISA and current regulations require the audit to be performed in accordance with (GAAS)

The exclusion by the plan sponsor of contracts/accounts that meet the criteria of the FAB will likely prevent the auditor from being able to issue an unqualified opinion or limited scope opinion under 29 CFR 2520.103-8

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DOL Transition Relief

Some sponsors may not find a qualified, adverse or disclaimer of opinion’s acceptable

Some vendors will not be in a position to exclude contracts/account information that meets criteria

DOL’s exception is for a “good faith” effort to comply with the ERISA annual reporting requirement

DOL is working on additional guidance

AICPA 403(b) task force is working on additional tools


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Preparing for the Annual Audit

Generally information is available within 2 months of year end

A 401(k) audit from start to finish can take 1-2 months with fieldwork generally one week or less

403(b) timing and fieldwork could be double, given the initial time through

Availability of SAS 70’s must be addressed (addressed in subsequent slide)

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What Does a SAS 70 Mean to a Plan Sponsor?

It is important to keep in mind that auditors, under professional standards, cannot be a part of a plan’s internal control

Controls of a benefit plan are comprised of controls at the plan sponsor as well as at service organizations

SAS 70’s are reports on the design of internal controls (Type I) and operating effectiveness (Type II) at a service provider. Outlines what user controls are required

Not only useful for the Auditor

Review by Plan Management at least annually as part of the third party service provider monitoring effort, is good practice

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Preparing For The Annual Plan Audit Complete Collaboration

Plan Sponsor Service Providers



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How to Prepare for the Annual Plan Audit

Take control of the process!

Know your responsibilities—the financial statements are those of plan management—only the opinion is the auditor’s

Hire a qualified independent auditor for your plan

If not provided by the auditor, request a list of schedules and documents the auditor will require prior to the start of the process

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How to Prepare for the Annual Plan Audit

Contact service providers early each year to assure they have the necessary information TO YOU on a timely basis. If you have not already contacted them for your 2009 plan audit, CONTACT THEM NOW!

All individual participant contracts and account balances in your plan

SAS 70 Reports (Is it a type I or Type II)

Information needed for 2008 compiled financial statements and information needed for opening balances testing

Have a point person. Establish responsibility for the Plan’s financially reporting function. (HR vs. Finance)

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How to Prepare for the Annual Plan Audit

Review information before it is provided to the auditor to minimize the back and forth

Make sure plan participant records are complete and accurate

Get your books and records in shape

Establish proper internal controls over the plan’s financial reporting process

Ensure that the plan has an up to date written plan document and an investment policy statement

Ensure that the plan is in compliance with the plan’s tax exemption

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How to Prepare for the Annual Plan Audit

Expect great things! (Embrace the process)

Communication throughout the process

Innovative ideas

Suggestions on enhancing procedures for efficiency and minimization of risk

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How to Prepare for the Annual Plan AuditWhat To Expect From the Auditor?

List of schedules and documents required


Understanding of Internal Controls

Risk Assessment

Requests for documentation of participant level information


Knowledge of plan terminology

Clear line of communication

Helpful recommendations!

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How to Prepare for the Annual Plan AuditWhat The Auditor is Expecting of You?


Documentation requested

Full analysis of vendors

Full analysis of participant population

Coordination of communication with third party providers

Financial statements

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How to Prepare for the Annual Plan AuditHow TPA’s Can Help and What Should They Provide?

Share Auditor request listing with the TPA

Organized audit package

Detailed listing of participant balances

157 information (assistance with information)

Draft Form 5500 and all related schedules

Compliance and discrimination testing

Universal availability

ADP (Actual Deferral Percentage Test) and Top Heavy testing not required

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How to Prepare for the Annual Plan AuditHow TPA’s Can Help and What Should They Provide?

Allocation of employer contributions

Loan roll-forward report/delinquent loan reports

Distribution report

Transaction information

SAS 70 report, if available

Timely response to inquiries resulting from the annual audit

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Challenges / Suggestions

Critical to employ fiduciary best practices, somewhat lacking in the 403(b) plan area

Plan Committees

Meet regularly

Keep written minutes

Document fiduciary due diligence

Investment Policy Statements

ERISA attorney relationships

Monitor service providers

Employ effective internal controls

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Challenges / Suggestions

Gather complete and accurate information from all vendors, for all years

Former employees and former vendors

Orphan contracts and missing participants

Effectuating information sharing agreements

Careful documentation of data collection process is essential

Beginning balances require certain audit procedures

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Helpful Websites & Tools

Plan Sponsor Magazine

Profit Sharing Council of America (IPS)

Employee Benefit Plan Audit Quality Center

Website: www.aicpa.org/ebpaqc

Includes Plan Advisories for communication and research on plan responsibilities

Includes tools for Plan Sponsors

Your Third Party Provider


Employee Benefits Security AdministrationOffice of the Chief Accountant: 202.693.8360

EFAST Help Line: 1.866.463.3278

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Department of Labor Update

Electronic filing of form 5500 Effective years beginning on or after 1/1/09

EFAST 2 – secure web portal filing system

Free DOL website based filing options—IFILE System

TPA value added software—go onto DOL website for approved vendors

EFAST 2 will help reduce errors and make information more accessible

There will be no more 30 day letters. Will just get a 45 day letter and the next letter will be to assess penalties!

Effective 1/1/10 EFAST (Old system) will only process 2008 form 5500 filings. All prior year filings will have to use EFAST2 (new system)

After 10/15/10 no paper 5500 forms will be accepted

NOTE: Filing under the new EFAST2 system may require additional time so this should be taken into consideration before the 10/15/10 extended deadline.

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2009 Annual Reporting with EFAST2

Mandatory beginning 1/1/10 and includes:

Plan Sponsor is required to maintain a hard copy

Short plan year 2009 filings—If due date is before 1/1/10, given an automatic extension to electronically file a complete form 5500 on EFAST2 within 90 days after the 2009 filing system is available on the DOL website. Can file on paper using 2008 forms but it must be submitted prior to 1/1/10

2 ways to create and submit filings

IFILE (free web-based filing application through DOL Website)

Third Party Certified Software (make sure they are approved)

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2009 Annual Reporting with EFAST2

Getting Started in EFAST 2

All filers must register for filing credentials whether using IFILE or third party software.

Go to www.efast.dol.gov and click “register”

Types of credentials

Filing Author

Filing signor

Schedule Author


Third-Party Software Developer

Credentials are assigned to individuals, not companies and will expire if not used for 3 years

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EFAST2 Credentials

1 - Filing Author —You can complete the 5500, attach schedules, submit the filing and check the filing status. (Many TPA’s will be fulfilling this role.)

2 - Filing Signer —This is for the individual(s) that would normally manually sign the 5500 (Plan Administrators, Employers/Plan Sponsors and Direct Filing Entities). Just like when it was manually signed, by electronically signing the Form 5500 you are indicating that to the best of your knowledge the Form and all it’s schedules and attachments are true, correct and complete. You are also legally responsible for making sure the filing is submitted timely. This mostly likely will be the credential most of you will need.

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EFAST2 Credentials

3 - Schedule Author —Complete 1 or more schedules that will go with the 5500 filing. This schedule must be exported. Once exported the filing author will import the schedule(s) to the correct filing. (If you use a TPA to prepare and file your 5500 this credential will not be necessary for you.)

4 - Transmitter —You will transmit the 5500 filing to the EFAST2 system. (If you use a TPA they will handle this area.)

5 - Third-Party Software Developer —Used to create test cases using their software to achieve certification for their software.

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EFAST2 Process

Audited Financial Statements —Your auditor will need to send you the audited opinion to go with the financial statements on the auditor’s letterhead, signed and in PDF (portable document format) file. The PDF will then be attached to the 5500 filing. Be aware there could be some file size issues. Not filing the audited financial statement will more than likely trigger an error on the EFAST2 system and the error will need to be corrected quickly or the filing will be rejected.

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EFAST2 Process

Extension – Complete the paper Form 5558 and submit it to the Internal Revenue Service. When you electronically file your Form 5500 on the EFAST2 system you do NOT need to attach a copy of the previously filed Form 5558.

Submission – The Transmitter or Filing Signer should check the filing status either on-line or on the help line 1-866-463-3278.

Filing Status – “Filing Received, Filing Stopped or Filing Error”. If the status is Filing Stopped or Filing Error action must be take to correct the Filing quickly.


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Prepare for the New Schedule C


Report plan related fees and expenses (New codes – use all that apply)

Facilitates annual review of plan’s fees and expenses as part of a fiduciary’s on going obligation to monitor service provider arrangements

Report terminated accounting firms and individual actuaries

Schedule C has 3 Components:

Identification of each person/service provider who received directly or indirectly $5,000 or more in total compensation in connection with services rendered to the plan or their position with the plan during the year.

Identification of fiduciaries or service providers who failed or refused to provide information necessary to complete part I of Schedule C

Terminated accounting firms s and individual actuaries

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Prepare for the New Schedule C

Direct Compensation—“Payments made directly by the plan for services rendered to the plan or because of a person’s position with the plan are reportable as direct compensation. Direct payments by the plan would include, for example, direct payments by the plan out of a plan account, charges to plan forfeiture accounts and fee recapture accounts, charges to a plan’s trust account before allocations are made to individual participant accounts, and direct charges to plan participant individual accounts. Payments made by the plan sponsor, which are not reimbursed by the plan, are not subject to Schedule C reporting requirements even it the sponsor is paying for services rendered to the plan.” (5500 2009 instructions)

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Prepare for the New Schedule C

Indirect Compensation —“Compensation received from sources other than directly from the plan or plan sponsor is reportable on Schedule C as indirect compensation from the plan if the compensation was received in connection with services rendered to the plan during the plan year or the person’s position with the plan. For this purpose, compensation is considered to have been received in connection with services rendered to the plan or the person’s position with the plan if the person’s eligibility for a payment or the amount of the payment is based, in whole or in part, on services that were rendered to the plan or on a transaction or series of transactions with the plan. Indirect compensation would not include compensation that would have been received had the service not been rendered or the transaction had not taken place and that cannot be reasonably allocated to the services performed or transaction(s) with the plan. Persons that provide investment management, recordkeeping, claims processing, participant communication, brokerage, and other services to the plan as part of an investment contract or transaction are considered to be providing services to the plan for purposes of Schedule C reporting and would be required to be identified in Part I if they received $ 5,000 or more in reportable compensation for providing those services.” (5500 2009 instructions)

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Prepare for the New Schedule C

Common Service Providers Who May Receive Indirect Comp

Investment Manager



Transfer Agent



Examples of Indirect Compensation

Commissions (including soft dollars)

SEC Rule 12b-1 distribution fees

Float revenue (if making distributions and held in an interest bearing account that earns interest)

Finders Fees

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Prepare for the New Schedule C

Exceptions From Reporting

Plan employee compensation < $25,000

Person’s whose only comp was reported on Schedule A

Sponsor who was not reimbursed by Plan

Other Important Changes

Reportable comp includes brokerage fees and commissions, now regardless of whether broker has discretion

For further help look at the “FAQ’s About the 2009 Form 5500 Schedule C” on www.dol.gov

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Prepare for the New Schedule C

Reporting Gifts and Other Non-Monetary Compensation

Must be reported

Limited de minimus exception

Instructions caution filers that gifts and gratuities of any amount paid to or received by plan fiduciaries may violate ERISA and give rise to civil and criminal liabilities

Limited Exceptions for Reporting Gifts and Non-Monetary Comp

Valued at less than $50

Aggregate value of gifts from one source less than $100 in calendar year

Gifts with value less than $10 do not have to be counted towards $100 limit

If $100 aggregate value is exceeded, the value of all gifts will be reportable

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Prepare for the New Schedule C

Excludable Non-Monetary Compensation —“You may exclude non-monetary compensation of insubstantial value (such as gifts or meals of insubstantial value) that is tax deductible for federal income tax purposes by the person providing the gift or meal and would not be taxable income to the recipient. The gift or gratuity must be valued at less than $50, and the aggregate value of gifts from one source in a calendar year must be less than $100, but gifts with a value of less than $10 do not need to be counted toward the $100 limit. If the $100 aggregate value limit is exceeded, then the value of all the gifts over $10 will be reportable. Gifts received by one person from multiple employees of one entity must be treated as originating from a single source when calculating whether the $100 threshold applies.” (5500 2009 instructions)

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“The material contained in this presentation is for general information and should not be acted upon without prior professional consultation.”