Continuing our occasional series of interviews with people of interest to human resource professionals in Connecticut, today we talk with Mathew Krukoski, CPA of J.H. Cohn’s Glastonbury, CT offices. Matthew is a Partner there and we had the opportunity to talk about the importance of having auditors review employee benefit plans, particularly as that employer grows.
We’ll have some more of these types of interviews over the next few weeks as well.
1. You’ve been doing a lot more audits lately. For a company that is growing, at what point do they need to start bringing in an auditor to review their employee benefit plans?
A compliance review can be performed at any time. However, generally speaking, the Department of Labor requires an audit when a Company’s employee benefit plan exceeds 100 eligible participants at the beginning of the plan year. For growing companies with an existing plan, the filing requirements contain a provision, known as the "80-120 Participant Rule", that allow a plan sponsor to elect a deferral of the audit requirement until participation has exceeded 120 eligible participants at the beginning of the plan year. Once participation in a plan reaches 121 eligible participants or more, an audit will be required.
2. What types of tasks do you perform during an employee benefit plan audit?
An audit of a plan is not only for compliance with accounting principles generally accepted in the United States of America but also requires a review of its operations for compliance with Department of Labor and Internal Revenue Service laws and regulations. Procedures typically include a review of the plan’s internal control environment, testing of pertinent plan transactions (i.e., contributions, distributions, participant loans, etc…) and to ensure consistent application of the plan’s provisions. A sample of plan transactions are reviewed and tested at the plan level as well as for individual plan participants. The end product of an audit is a complete set of financial statements and auditor’s opinion that are required to be attached to the plan’s Form 5500 filing.
3. What are some common issues that you see when doing an audit?
Our audit compliance testing have revealed errors related to the calculation of participant contributions, the calculation of employer matching or profit-sharing contributions, the distribution of appropriate vested account balances and the utilization of a plan’s stated definition of compensation. However, for contributory defined contribution plans, the most common deficiency relates to the timely remittance of employee contributions.
4. A big topic of discussion lately has been the new 403(b) Plan Requirements. Can you talk about that a bit and what employers ought to be considering with respect to these plans?
In the past, sponsors of 403(b) plans had very limited reporting requirements. Beginning with the 2009 Form 5500 filings, the reporting requirements of these plans will become more in line with that of traditional 401(k) plans, including the Department of Labor’s audit requirement. Obviously, employers of large plans will need to engage an independent qualified public accountant to perform the audit of their 403(b) plan. However, the first item that a plan sponsor should focus on is the preparation of their plan records. This may involve talking with their ERISA attorney to clarify the need for an audit, talking with their service provider for the timing and availability of the plan’s financial information and potentially engaging the services of a third-party administrator to coordinate the recordkeeping and other compliance aspects of plan administration. Plan sponsors of 403(b) plans will need to allocate a significant amount of time and resources this year to understand and comply with the new reporting requirements.
5. What are the other hot topics that you’ve been discussing with your clients?
Having a large concentration of clients in this specialized audit area, we make every effort to look beyond the compliance aspects of an engagement in order to provide plan sponsors with constructive, value-added comments and suggestions. Compliance is very important, but we also remind plan sponsors of their fiduciary responsibilities as well. This may include understanding the terms of their plan, the appropriate selection and monitoring of service providers, timely contributions to fund benefits and avoiding prohibited transactions. One of the most important aspects of being a fiduciary is the appropriate monitoring of the plan’s investment performance, which includes an understanding and analysis of plan fees and expenses. With market performance as volatile as ever, plan fiduciaries should understand that it is their responsibility to provide participants with the best possible investment alternatives.