401(K) PLAN ADMINISTRATION HOW TO HELP YOUR CLIENTS AVOID IRS AND DOL PENALTIES

Transcription

1 401(K) PLAN ADMINISTRATION HOW TO HELP YOUR CLIENTS AVOID IRS AND DOL PENALTIES

2 Sponsor Background Summit CPA Group Distributed Firm Employees Located Throughout the Country Audit Partner Kim Moore, CPA Audit Staff 7 Audits Performed Virtually Top 1% of all firms Performing 401K Audits for 2018 Firm Began in 2002 Began 401(k) Audits 2012 Number of Audits Over 140 in 2018 Virtual 401K Audits 20% of Firm-wide Revenue

3 SPEAKER BACKGROUND KIMBERLY MOORE Kimberly is the Audit Partner with Summit CPA Group headquartered in Fort Wayne, Indiana. Summit specializes in 401(k) audits and currently conducts over 100 audits per year. The audits are conducted virtually with staff located throughout the United States. Kimberly has over 30 years of audit experience working primarily with a Fortune 250 financial services company in the areas of life insurance, annuities, retirement services, brokerage, information technology and other related areas. She also has experience with Sarbanes Oxley Program Management and Six Sigma initiatives. She has worked internationally and throughout the United States. Kim has headed up the assurance section at Summit CPA since the beginning of 2014.

4 POLLING QUESTION 1 HOW MANY CLIENTS DO YOU WORK WITH THAT HAVE 401(K) PLANS? NONE ONE FIVE SIX TEN MORE THAN TEN UNSURE

5 POLLING QUESTION 2 WHAT IS YOUR EXPERIENCE LEVEL IN DEALING WITH 401(K) ADMINISTRATION? I ADMINISTER THE FIRM S 401(K) PLAN. I WORK WITH CLIENT 401(K) PLANS. I HAVE WORKED WITH 401(K) PLANS IN A PREVIOUS JOB. I PARTICIPATE IN A 401(K) PLAN AS A PARTICIPANT. I HAVE LITTLE EXPERIENCE WITH 401(K) PLANS.

6 401(K) PLANS BACKGROUND Established by the Revenue Act of 1978 Section 401(k) formal rules established November 10, 1981 As of December 31, 2017: Total US Retirement Assets $27.9 trillion $5.3 trillion (19%) were in 401(k) Plans Approximately 55 million active participants

7 401(K) GOVERNANCE ERISA Employee Retirement Income Security Act of 1974 Regulatory IRS Department of Labor PCAOB Plan Document

8 REGULATORY AGENCIES CONDUCT AUDITS/ INVESTIGATIONS The Employee Benefits Security Administration (EBSA) of the Department of Labor closed 2,002 civil investigations during ,356 (68%) incurred monetary penalties or required additional contributions to the Plan from the investigation. Total amount recovered in 2016 was $777.5 million. The audits can take months or even years. They can refer the case to other agencies such as the IRS or U.S. Attorney s Office.

9 GOVERNANCE KEY POINTS The Plan Sponsor needs to ensure they follow all the requirements in the Plan Document. What is included in these legal agreements overrides management s intention if there is a conflict. Amend the documents if needed. There is no concept of materiality when it comes to Compliance especially with regard to the impact to participant accounts.

10 The Best Way to Avoid IRS/DOL Issues is to Monitor Plan Administration

11 PLAN FIDUCIARIES Named individual(s) These individuals have legal liability with regard to the Plan. Delegation of administration versus responsibility

12 Defined in Plan Document Determines who can enter Plan and when they can enter Exclusions ELIGIBILITY/ ENROLLMENT Auto enrollment Timeliness and Documentation are key Consider structural changes New offices Subsidiaries System changes

13 Types Methods Need to ensure the definition of compensation is correct CONTRIBUTIONS Updates required for: Deferral rate changes Salary changes Loan repayments

14 CONTRIBUTION TIMELINESS RULES DOL regulations (Regulation ) state "amounts paid to or withheld by an employer become plan assets on the earliest date on which they can reasonably be segregated from the employer's general assets." Interpreted to mean the deadline is as soon as the employer can process payroll and separate out the individual components and transfer those funds to the respective providers. Consistency is the key.

15 DISTRIBUTIONS Defined in Plan Document Best Practice is for Plan Sponsor to Authorize Automatic Withdrawals Remove participants that have terminated timely to reduce administrative costs Hardship withdrawals

16 VESTING AND FORFEITURES Plan document will specify if forfeitures apply and vesting period Important you understand these rules Review for compliance Explain to employees Reporting Use of Forfeitures

17 TAX WITHHOLDING AND REPORTING

18 Specific rules in Plan Document Legal agreement between the Plan and the Participant Interest repaid Timeliness/Communication is key PARTICIPANT LOANS Deemed Participant Loans

19 POLLING QUESTION 3 EMPLOYEE CONTRIBUTIONS INTO A 401(K) PLAN MUST BE SUBMITTED BY THE PLAN SPONSOR: ONCE A MONTH ONCE A QUARTER AT THE END OF THE YEAR WHENEVER THE PAYROLL PROCESSOR HAS TIME AS SOON AS THE CONTRIBUTIONS CAN BE REASONABLY SEGREGATED FROM THE EMPLOYER S ASSETS

20 REQUIRED DISCLOSURES Understand the required disclosures for your Plan Ensure they are disseminated to participants Make sure you understand the process with your service provider

21 FIDELITY BOND Required for all Plans Requirements Check with your insurance carrier Periodic review

22 POLLING QUESTION 4 A FIDELITY BOND IS REQUIRED FOR: PLANS OVER $1 MILLION PLANS WITH MORE THAN 30 PARTICIPANTS ALL PLANS NO PLANS REQUIRE A BOND

23 FORM 5500 IRS Informational Form only Required for all Plans Penalties for late filing Accuracy important to avoid penalties EFAST entry

24 POLLING QUESTION 5 HAVE YOU EVER PREPARED A FORM 5500? YES NO HAVE ASSISTED WITH PREPARATION DON T RECALL

25 PLAN CENSUS Listing of all company employees with key information Accuracy and completeness important Review before submitting to third party Review any error reports provided

26 DISCRIMINATION TESTING Required annually for most Plans Usually prepared by service provider Used to document that the Plan remains compliant with several IRS and DOL requirements Refunds

27 Risk Assessment Approval/Authorization Disbursements Eligibility/Enrollment Form 5500 Reconciliations Payroll Contributions INTERNAL CONTROLS SOC Report Reviews

28 Oversight Committee Audit Committee PLAN OVERSIGHT/ MONITORING Investment Committee Benefit Plan Committee Report Reviews Transactional Reviews Risk Assessment Investment Selection

29 ACCESS SECURITY/CYBERSECURITY RISKS Need to review access periodically Ensure Require participants to make all changes to their accounts

30 PLAN DOCUMENTATION CONSIDERATIONS To ensure compliance and in the case of an audit, documentation is key. Ensure client keeps relevant data Plan documents Payroll data HR files Tax data such as W 2 files Enrollment information

31 POLLING QUESTION 6 WHAT TYPES OF PAYROLL DATA DO YOUR CLIENTS MAINTAIN? TOO MUCH DATA! ONLY YEAR END INFORMATION MONTHLY OR QUARTERLY REPORTS DATA FROM EACH PAYROLL IS MAINTAINED VARIES BY CLIENT UNSURE

32 RELATED PARTIES AND PARTIES IN INTEREST Benefit Plans have a specific designation called Party in Interest What are they?

33 PLAN FEES Make sure you understand how fees are charged. Look to move out terminated employees to help reduce fees.

34 HOW TO AVOID A VISIT FROM THE IRS/DOL Employee Inquiries Monitoring of Plan Activity Good documentation Accuracy, completeness and timeliness

35 CORRECTION METHODS IRS Self Correction Programs and Voluntary Correction Programs DOL Voluntary Fiduciary Correction Programs and Delinquent Filer Voluntary Compliance Program Voluntary Correction is encouraged

36 WHEN IS A PLAN AUDIT NEEDED? Over 100 eligible participants Based on beginning of year numbers 401(k) Audits are very specialized Audits are highly scrutinized by the DOL

37 QUESTIONS

38 NEED MORE INFORMATION? Summit CPA Group Kim Moore, CPA (260) FEEL FREE TO GET IN TOUCH!