REMAIN ON TRACK BENEFIT PLAN INTERNAL CONTROLS AND RECORD RETENTION

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1 Presented by: Mark LaPrade, CPA Adam Lomas, CPA REMAIN ON TRACK BENEFIT PLAN INTERNAL CONTROLS AND RECORD RETENTION berrydunn.com

2 SESSION OBJECTIVES Understanding of the importance of internal controls for defined contribution and defined benefit plans Identify areas of plan operation where internal controls are most critical Gain control over record retention requirements for plans subject to ERISA 2

3 THE IMPORTANCE OF INTERNAL CONTROLS Why focus on internal controls? Prevent and deter fraud and errors Detect and correct errors quickly Provide proper oversight of service providers Emphasized in IRS and DOL exams Opportunity for self-correction of operational errors 3

4 THE IMPORTANCE OF INTERNAL CONTROLS Internal controls from the perspective of the IRS IRS audit, agent looks at internal controls first Strength of internal controls can dictate sanctions for deficiencies Internal controls should include procedures for: Plan Operations Review Plan Document Updates 4

5 THE IMPORTANCE OF INTERNAL CONTROLS Internal controls from the perspective of the IRS Plan Operations Review Verify plan is operating according to its written terms IRS provides sample questions at: Plans/Policies,-Procedures-and-Internal-Controls-Self-Audit Plan Document Updates Consult with benefits provider before the new plan year for any amendments to the plan for legal compliance or to address operational changes 5

6 WHAT IS REQUIRED? Established practices and procedures Can be formal or informal Consider Review and approval procedures Periodic reconciliations Minutes Fraud risks 6

7 KEY AREAS WHERE INTERNAL CONTROLS ARE CRITICAL 7

8 KEY AREAS WHERE INTERNAL CONTROLS ARE CRITICAL Proper authorization over payroll and related changes Internal controls over payroll and contributions to the plan: Compare salary deferral election forms to amounts deducted Verify types of compensation used in the plan document Monitor annual contribution and compensation limits Reconcile amount deposited to payroll reports Review eligibility to participate in plan 8

9 KEY AREAS WHERE INTERNAL CONTROLS ARE CRITICAL Proper authorization over payroll and related changes Who has access rights to make payroll changes? Demographic information Compensation rates Withholdings New/terminated employees How are changes captured? How are changes reviewed and documented? 9

10 KEY AREAS WHERE INTERNAL CONTROLS ARE CRITICAL Proper authorization over payroll and related changes How are online changes through service provider website captured, documented, and reviewed? How are automatic enrollment or automatic increases handled? 10

11 KEY AREAS WHERE INTERNAL CONTROLS ARE CRITICAL User control considerations in service provider SSAE 16 (formerly SAS 70) report What are these and why do they matter? What types of user controls are listed? Update authorized user access to service provider website Provide complete and accurate data to service provider Notify employees of plan eligibility on a timely basis Notify service provider promptly of changes to termination and re-hire information 11

12 KEY AREAS WHERE INTERNAL CONTROLS ARE CRITICAL Thorough review of work performed by a service provider Contribution information by participant after upload Timely deposit of employee contributions Investment elections submitted in hardcopy Set-up of participant accounts when there is a change in service providers 12

13 KEY AREAS WHERE INTERNAL CONTROLS ARE CRITICAL Thorough review of work performed by a service provider (continued) Benefit payments and participant loans Hardship withdrawals Check for clerical accuracy including eligibility & proper vesting Procedures to identify persons no longer entitled to receive benefits Reasonableness of periodic annuity payments Verify marital status and spousal consent Required minimum distributions Periodic review of plan-level activity (monthly, quarterly, etc.) 13

14 KEY AREAS WHERE INTERNAL CONTROLS ARE CRITICAL Fiduciary responsibility and review of investments Establishment of individual or committee charged with review Establishment and adherence to an investment policy Considerations for new and changes to existing investment options Monitoring investments against ERISA diversification requirements Insurance/investment contracts are financial statements of the issuer reviewed? 14

15 KEY AREAS WHERE INTERNAL CONTROLS ARE CRITICAL Review, approval, and implementation of changes to plan documents Verification that requested changes are properly reflected in the amendment or restatement Review of complete document restatements Retention of signed plan documents and amendments Distribution of Summary of Material Modification and/or Summary Plan Description after amendment or restatement 15

16 KEY AREAS WHERE INTERNAL CONTROLS ARE CRITICAL Procedures related to distribution of required notices, forms, etc., to plan participants What are the annual notice requirements? Do service providers provide all required notices? When can the forms be provided electronically? Have the provider fee disclosures been reviewed for reasonableness? 16

17 KEY AREAS WHERE INTERNAL CONTROLS ARE CRITICAL Plan Testing Who completes the annual testing for the plan? Who determines which participants are highly compensated? Who reviews the annual testing to ensure that the correct data was used? Who reconciles the trust statements to ensure their accuracy? Who reviews the Form 5500 for the plan? 17

18 ERISA RECORD RETENTION 18

19 ERISA RECORD RETENTION Two specific requirements under ERISA: Section 107: Retention of Records for Reporting and Disclosure Records that are relevant to plan reporting (Form 5500) are required to be maintained for six years What type of records need to be retained? Section 209: Recordkeeping and Reporting Requirements for Participant and Vesting Records that are relevant to determining a participant s balance are required to be maintained for a sufficient period of time to determine the benefits due What type of records need to be retained? 19

20 ERISA RECORD RETENTION How do I maintain all of this documentation? Section : Use of electronic media for maintenance and retention of records Controls are required to ensure the integrity, accuracy, authenticity, and reliability of the records kept in electronic form Must be readily converted into a legible and readable paper copy Adequate records management practices (labeling, back-up, etc.) must be established Be mindful during conversions of trustees, custodians, etc. 20

21 TAKEAWAYS Don t rely on annual Form 5500 / financial statement audit as an internal control Document, document, DOCUMENT! Use of third parties does not relieve the plan sponsor of its responsibilities 21

22 WE ARE ALWAYS AVAILABLE FOR YOUR QUESTIONS Mark LaPrade Adam Lomas 22