2. Presenters:
Cynthia L. Keith, CFA
Executive Director-Investments and Senior
Portfolio Manager
Oppenheimer & Co. Inc.
Erin Hultman, CPA, MST
Senior Manager-Audit and Assurance Services
Tate & Tryon, CPAs and Consultants
3. Final Regulations
• Effective for plan years beginning
on or after January 1, 2009
• Written plan document
• Nondiscrimination rules
• Closes the gap between 403b and 401k plans
• Form 5500 filing requirements
4. Plan document
• Must be written
• Stand-alone or collection
• Must include material provisions
▫ Eligibility
▫ Benefits
▫ Investment options
6. Closes the gap between
403b and 401k regulations
• Timely employee deferral remittances
• Form 5500 filing requirement if subject to
ERISA
• Plan administration
• Fiduciary responsibilities
7. Who are the plan’s fiduciaries?
• Discretion
• Control
• Examples
▫ Administration
▫ Trustee
▫ Investment consultant or manager
8. Who is not a fiduciary?
▫ Attorneys for the plan
▫ Accountants for the
plan
▫ Actuaries for the plan
9. What are the fiduciaries’
responsibilities?
• Act solely in the interest of participants
• Act prudently
• Follow plan documents
• Diversify investments
• Pay reasonable expenses
10. What is the liability for fiduciaries?
• Personal liability
• Ways to limit that liability
1. Document processes
2. Full reporting
3. Provide participants with control over
investment options
4. Provide default investment options
5. Liability indemnification or fidelity bond
11. Form 5500 filing requirements
• ERISA v. Non-ERISA – new
regulations did not impact directly
• Non-ERISA plans
• Church & governmental plans
• Employee deferral ONLY plans
• Increased scrutiny by DOL of sponsoring
organization
12. Form 5500 filing requirements
• ERISA plans
• Small plan v. large plan
• 80/120 rule
• Schedule H
• eFiling required
14. Transition guidance
• Revenue Procedure 2007-71
▫ Contracts issued prior to 1/1/2005
▫ Contracts issued 1/1/2005 – 1/1/2009 –
reasonable good faith effort
▫ Contracts issued after 1/1/2009 – include in
plan assets
15. Transition Relief:
DOL Field Assistance Bulletin 2009-02
• Contract issued before 1/1/2009
• No obligation to make contributions since
1/1/2009
• Rights under contract enforceable against
insurer, no employer involvement
• Owner of contract is fully vested
16. What qualifies as employer
involvement?
• EBSA Field Assistance Bulletin No. 2010-01
▫ Involvement can include keeping plan
compliant
▫ Employer can confirm employee information
▫ Employer cannot approve transactions
18. Preparing for the audit
• Obtain TPA reports, 2009 and 2008, by
investment and by participant
• Document internal controls
• Determine participant count and plan asset
totals
• Properly value plan assets
19. Accurate investment valuation is a
fiduciary duty
Why is accurate valuation important?
• Responsibility to maintain records and report on
form 5500
• Plan Distributions need to be correct
20. What is fair value?
• GAAP requirement
• Old definition of fair value
• New definition of fair value
21. How should investments be valued?
• Level 1 – quoted prices in active markets for identical
assets
1. For identical assets only
2. Accessed at the measurement date
3. Must be used if available
• Level 2 – observable inputs
1. Not exchange prices but directly or indirectly
observable
2. What market participants are using
• Level 3 – unobservable inputs
1. The plan’s assumptions about market price
2. Based on information available
3. May rely on investment manager
22. Ensuring appropriate investment
valuations
Why is this important to you as a
fiduciary?
• Custodian etc may provide prices
• Fiduciary remains responsible
• Fiduciary required to evaluate pricing
23. Internal controls
• Process for determining fair value
• Select appropriate valuation method
• Identify and support assumptions
24. Practical steps
• Obtain SAS #70 report
1. Type 1 report
2. Type 2 report
• Caveats
1. Without SAS #70
2. Mutual funds and marketable securities
3. SAS #70 does not cover alternative investments
25. Valuation short cuts that may not work
• Custodial reports
1. Valuation date not equal to plan year end
2. Pass through pricing
• Certification from custodian or trustee
1. ERISA allows this in certain cases
2. Should state prices are fair value
• Hiring an appraiser
1. Relieves some responsibility for fair value pricing
2. Fiduciary still responsible for review
27. Audit opinions
• Unqualified – full scope only
• Qualified – possible as a result of missing
plan information
• Disclaimer – due to limited scope audit
• Disclaimer – due to other limitations
• Adverse
• What opinions will DOL accept on Schedule
H?
• Good faith effort
28. Common audit pitfalls to avoid
• Employee contributions not remitted timely –
no safe-harbor for large plans
• Incomplete employee files
