2015 Employee Benefit Plan Audit Conference Basic Audit Workshop Maryland Association of CPA s Columbia, Maryland April 27, 2015

Transcription

1 2015 Employee Benefit Plan Audit Conference Basic Audit Workshop Maryland Association of CPA s Columbia, Maryland April 27, Discussion Leaders Michael Auerbach Marilee P. Lau 2 1

2 Overview and Introduction 3 Workshop ERISA and Related Regulations Planning, Risk Assessment and Internal Control Investments and Investment Income Cash Balances, Participant Accounts and Allocations, Contributions and Participant Data Distributions, Census Data, and Plan Benefit Obligations Party in interest, Prohibited Transactions and Plan Tax Status Concluding the Audit and Other Audit Considerations Reporting and Disclosure Requirements 4 2

3 Workshop Interactive with participants Basic Regulatory, Accounting, Auditing and Reporting fundamentals Participant questions, observations and real life examples encouraged 5 Who Is Here? External Auditors Internal Auditors Plan Administrators/sponsors Attorneys Tax Professionals Third Party Administrators 6 3

4 Regional Firm Local Firm Partners Managers Staff Plan Auditors 7 Plan Audits How many plans does your firm audit? < 5 <10 <25 <50 8 4

5 Types of Plans Defined Benefit Plans Defined Contribution Plans Health and Welfare Plans ESOP Plans Full Scope audits 11 K s Limited Scope audits 9 ERISA and Related Regulations Audit Guide Chapter 1 and Appendix A 10 5

6 Learning Objectives How a benefit plan is defined under ERISA, GAAP and the IRS The design and functioning of single employer defined benefit and defined contribution retirement plans When an audit is required The role of the various parties involved in the operation of the benefit plan 11 ERISA Employee Retirement Income Security Act (ERISA) of 1974 Governs operation, administration & annual reporting for pension & welfare plans ERISA contains four Titles General DOL responsibilities Tax Law requirements Specific jurisdiction and enforcement procedures Multiemployer plan matters 12 6

7 ERISA is Administered By: Department of Labor (DOL) Employee Benefit Security Administration (EBSA) Internal Revenue Service (IRS) Pension Benefit Guarantee Corp. (PBGC) Social Security Administration (SSA) 13 Provisions of ERISA Applies to most U.S. employee benefit retirement plans and welfare benefit plans Protects interests of participants and beneficiaries Sets minimum standards for participation, vesting, benefit accrual and funding Establishes an effective mechanism to detect and deter abusive practices 14 7

8 Trivia Questions Which President signed the Employee Retirement Income Security Act into law? What car company s defined benefit plan is considered a pivotal event in history for ERISA? What else was happening causing ERISA to be enacted? 15 What car company s defined benefit plan is considered a pivotal event in history for ERISA? 16 8

9 Other Events Private pension coverage increasing at a dramatic rate of $12 15 billion a year Workers losing their benefits when they leave their jobs or get fired 17 At a Glance Then and Now Mid 1970 s 40 Years Later Number of US workers 90 million 150 million Employees participating in employersponsored plans 44 million (1975) 129 million (2011) Number of defined benefit plans 103,000 45,000 Number of defined contribution plans 207, ,000 Total assets in private retirement plans $164 billion $13 trillion Life expectancy at birth male Life expectancy at birth female Savings rate 13% 4.3% Worker to social security retiree ratio

10 ERISA Plan Audit Universe 82,579 Plan Audits 7,358 CPA firms performing audits $6.3 trillion in plan assets subject to audit 19 Types of Plans Defined Benefit Retirement Plans Defined Contribution Retirement Plans Health and Welfare Plans 20 10

11 Defined Benefit Plans Promises a future benefit that is stated in the plan document or can be calculated according to a formula provided in the plan document Traditional Defined Benefit Plan Cash Balance Plan Pension Equity Plan 21 Defined Contribution Plan Requires an individual account for each participant and provides benefits based on amounts contributed, investment experience, allocated expenses and allocated forfeitures Profit sharing plan Money purchase plan Cash or deferred arrangement 401(k) Tax sheltered annuity plan 403(b) Employee stock ownership plan ESOP Deferred compensation plan 457(b) 22 11

12 Plan Audit Requirement Plan audit requirement is governed by what type of Form 5500 is filed by the plan Plans Requiring a Financial Statement Audit ERISA section 103(a)(3)(A) contains the audit requirement Auditor is engaged on behalf of participants and beneficiaries Plans filing a Form 5500 as a large plan generally require an audit Some exceptions to the audit requirement do exist Some small pension plans may be required to have an audit 24 12

13 Pension Benefit Plans (Filing Requirements) Plans with 100 or more participants (at the beginning of the plan year) file a Form 5500 for large plans Plans with less than 100 participants (at the beginning of the plan year) file a Form 5500 for small plans Plans with One Participant file a Form 5500 EZ 25 Small Pension Plan Security Regulation Small plans are vulnerable to theft and fraud Small plans hold over $300 billion in assets Goals: Increase the accountability of those handling assets Improve security of pension assets Encourage small employers to sponsor plans Rule has disclosure & fidelity bonding requirements for certain small plans 26 13

14 What Does This Mean? Only applies to pension plans with less than 100 Participants at the beginning of the year Includes a two part test financial and disclosure If the plan fails either part of the test an audit is required 27 Welfare Benefit Plans (General Filing Requirements) Plans with 100 or more participants (at the beginning of the plan year) file the Form 5500 for large plans Plans with less than 100 participants (at the beginning of the plan year) file the Form 5500 for small plans 28 14

15 Welfare Benefit Plans (Exemptions From Filing/Audit) Plans with more than 100 participants at beginning of the plan year, and Pay benefits solely from plan sponsor assets, or Provide benefits through insurance contracts, or A combination of the two items above, any employee contributions are forwarded within three months of receipt 29 Cafeteria Arrangements Generally are not required to be audited unless they also provide welfare benefits PWBA Technical Release 92 1 Section 125 (Cafeteria) Plans may not need an audit if assets are not held in trust 30 15

16 Direct Filing Entities (DFEs) Entities required to file Master Trust Investment Accounts (MTIAs) Entities that may elect to file Pooled Separate Accounts (PSAs) Common Collective Trusts (CCTs) Investment Entities (103 12IEs) Group Insurance Arrangements (GIAs) 31 DFEs Electing Not to File Affects how participating plans file If PSA or CCT does not file as DFE, plan may not use limited reporting on Schedule H If GIA does not file, each plan participating in GIA must make its own filing If does not file, participating plans are not afforded limited reporting and plan audit relief 32 16

17 Helpful Links EBSA website FAQs about pensions plans and ERISA pension.html FAQs on the Small Pension Plan Audit Waiver Regulation html 33 Helpful Links FAQs about Abandoned Plans FAQs about the DFVC Program

18 Common Audit Deficiencies (See listing in materials) Participant Data Investments Contributions Benefit Payments Related Party/Prohibited Transactions Reporting and Disclosure 35 Government Entities with Plan Oversight Treasury Department (writes regulations, etc.) U.S. DOL PBGC (defined benefit plans only) Internal Revenue Service (enforcement of laws) Employee Plans/Exempt Organization (EP/EO) Employee Benefit Security Administration (EBSA) SEC/PCAOB Plans with Employer Securities Form 11-K filings Field Examiners (auditors) Plan Reviewers (determination letters) For Enforcement of IRC & ERISA Pension Provisions 36 18

19 Consultant Attorney Plan Design and Plan Document Employer Typical Players in U.S. Retirement Plans Investment Advisor Supplemental Schedules Trustee or Custodian w/ Trust Asset Information Actuary (DB/HW Plans) Actuarial Report Third Party Administration (All Plans) GL and Management Reports Independent Auditor Finance Internal Audit Controller Benefits HR Payroll Employee and Participant Data Plan s Financial Information and/or GL Management and Participant Reports Audited Financial Statements Investment Advisor Plan Administrator or Administrative Committee Form 5500 DOL Participant Statements, SAR Participants 37 Authoritative Literature FASB Accounting Standards Codification (FASB ASC) Statements on Auditing Standards (SAS AU C) Audit & Accounting Guide for Employee Benefit Plans Audit Risk Alert for Employee Benefit Plans Industry Developments Employee Benefits Security Administration (EBSA) PCAOB/SEC 38 19

20 Questions???? 39 Planning, Risk Assessment and Internal Control Audit Guide Chapters 2, 3 and

21 Learning Objectives Audit Guide and Audit Standards Issues related to client acceptance and continuance Planning and client communications How to determine the scope of the audit Using the work of specialist How to gain an understanding of a plan s internal control Assessing engagement fraud and overall audit risk assessment 41 Determining the Audit Scope Is this an ERISA covered plan? How many participants at the beginning of plan year? < than 100 participants no audit generally necessary Regulatory exemptions from audit Planning 42 21

22 Initial or First Year Audits AU C 510 Opening Balances Initial Audits Engagements, Including Reaudit Engagements Predecessor Auditors Communication Review of work papers Example Consent and Acknowledgement letters Opening balances What procedures need to be performed Participant data Who are the Service Providers Trustee Record Keeper Actuary 43 Considerations Participant contributions and eligibility The amounts and types of benefits The eligibility for benefits Participant account balances Census data maintained by the actuary Risk assessment Fraud considerations Service providers Plan governance 44 22

23 Considerations When designing the nature, timing and extent of audit procedures consider How long the plan been in existence Longevity and competency of plan management and service providers Complexity an adequacy of internal control structure, including contribution remittance policies Complexity of benefit calculations and nature of investments Completeness of plan assets and participants How complete and organized are the plan records Monitoring of service providers and availability of SOC 1 Reports Regulatory compliance, litigation, fraud, going concern Tax compliance testing 45 What Type of Audit to Perform? Must apply all applicable GAAS procedures Basis of Accounting Accrual or Modified Cash Full Scope Audit Must audit investment information Limited Scope Audit Investment information not audited Investments certified by a qualified Trustee DOL Regulation Must audit all other aspects Auditor has responsibility for investment disclosures Form 5500 and Supplemental Schedules 46 23

24 Form 5500 and Required Schedules Required schedules Schedule H Financial Information Schedule G Financial Transaction Schedules Supplemental schedules 4(a) Delinquent Participant Contributions 4(i) Assets Held 4(j) 5% Reportable Transactions Other schedules A Insurance Information C Service Provider Information D DFE/Participating Plan Information SB/MB Defined Benefit Plan Actuarial Information R Retirement Plan Information 47 Auditing Standards Relating to Audit Planning, Risk Assessment, and Internal Control AU C 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Generally Accepted Auditing Standards AU C 210 Terms of Engagement AU C 220 Quality Control for an Engagement conducted in accordance with GAAS AU C 260 The Auditor s Communications with those charged with Governance AU C 300 Planning the Audit 48 24

25 Auditing Standards Relating to Audit Planning, Risk Assessment, and Internal Control AU C 265 Communicating Internal Control Related Matters Identified in An Audit AU C 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement AU C 320 Materiality in Planning and Performing an Audit AU C 402 Audit Considerations Relating to an Entity Using a Service Organization AU C 500 Audit Evidence AU C 620 Using the Work of a Specialist 49 Communication with Those Charged with Governance AU C 260 states that the auditor should communicate with those charged with governance an overview of the planned scope and timing of the audit Determine who is charged with governance over the plan Communicate responsibilities both of management and of the auditor Financial statements are the responsibility of plan management 50 25

26 Engagement Letter Engagement letter is part of your required communication with the those charged with governance AU C 210, 220 and 260 General requirements: Objective and scope of the audit Responsibilities of the auditor and management Inherent limitations Applicable financial reporting framework (cash or accrual) Expected form and content of the audit report Fees 51 Engagement Letter Additional matters for an employee benefit plan Whether the engagement is to be a full scope or limited scope Any scope limitations imposed by management Auditor s responsibility with respect to the supplemental schedules Auditor s responsibility with respect to the tax status of the plan and the Form 5500 Other auditors or specialists involved in the audit Involvement of third party service organizations or affiliates of the public accounting firm Auditor s communication responsibilities with those charged with governance Agreed upon time tables and responsibilities 52 26

27 Engagement Letter Additional matters for an employee benefit plan Whether due to the complex or subjective nature of the subject matter, the audit may require the special skills and knowledge of a specialist (i.e. use of actuaries for DB and H&W plans or valuation professionals for investments) Non attest services assistance in drafting the Plan s financial statements (including supplemental schedules) and related footnotes See example engagement letter in the AICPA Audit Guide and example in materials. 53 Acceptance and Continuance Is the Firm: Competent to perform the engagement Capabilities, time and resources Comply with legal and relevant ethical requirements Consider the integrity of the client the identity and business reputation of the client s principle owners, key management, related parties, and those charged with governance 54 27

28 Plan Administration and Operations Obtain relevant documents Plan document Trust agreements Investment information Administrative service agreements Prior plan filings Other Determine how the plan operates (Appendix 5A and 6A of the Guide) Understand Service Providers Identify current developments Plan sponsor changes, mergers, acquisitions, changes in service providers, plan amendments 55 Determine how the Plan Operates Documents and Agreements Key Roles and Responsibilities Plan Sponsor and Service Providers Key Plan Provisions Eligibility Date of participation Auto enrollment Employee Contributions Employer Contributions Vesting and Forfeitures Benefit Obligations Benefit Distributions and participant loans Plan expenses Reports and Records 56 28

29 Participant Information Information from the plan sponsor s payroll, time reporting and human resource systems is needed for most employee benefit plan audits Auditors need to gain an understanding of how: Compensation is paid or hours worked impacts salary deferrals and employer contributions How such information is used for the benefit obligation valuation Demographic information regarding eligibility to participate or to receive a distribution Completeness of participant data 57 Using the Work of a Specialist Auditor's specialist AU C 620 Using the Work of a Specialist Management s specialist AU C 500 Audit Evidence Both standards require the auditor to understand the competence, capabilities, and objectivity of the specialist Specialist s qualifications Specialist s field is related to the audit area What professional or other standards apply What assumptions and methods are used The nature of internal and external data 58 29

30 Evaluating the Specialist s Work The relevance and reasonableness of the findings and conclusions Obtaining an understanding of the assumptions and methods used Accuracy of source data Can t just rely on the report of the specialist The auditor needs to perform audit procedures to validate the findings and conclusions. New EBPAQC tool for actuaries and appraisers 59 Audit Risk AU C 200 Risk of an inappropriate opinion when the financial statements are materially misstated Areas of particular risk in an employee benefit plan Fair value of investments New types of investments Complex calculations of benefit payments Transactions initiated by telephone or electronic means Basis for calculating employer and employee contributions Other areas? Consider risk in relation to the relevant assertions related to individual account balances, classes of transactions, and overall financial statements and disclosures 60 30

31 Potential Pervasive Risks Lack of oversight and monitoring of plan operations and service providers Lack of financial reporting expertise Lack of communication about plan events Lack of segregation of duties Changes in personnel, service providers, payroll systems, etc. Lack of ERISA counsel involvement Financial difficulty of plan sponsor or other changes such as mergers, acquisitions, or terminations 61 Assessing the Risks of Material Misstatement Effect of external factors Ramifications resulting from regulatory changes The effect of plan design changes and events such as plan amendments Whether the risk of material misstatement would be high for areas such as investments Susceptibility of plan assets to fraud Whether the risk of material misstatement would be high due to the competence of client personnel 62 31

32 Planning Materiality AU C 320 Materiality in Planning and Performing an Audit Benchmarks may include Total assets or total additions Changes in net assets available for benefits Net assets available for benefits Benefit payments for a terminating plan Net assets at the beginning of the year for a terminating plan H&W plans plan contributions or benefit payments ESOP allocated net assets or outstanding loan balance Performance materiality takes into account the aggregate of individual immaterial misstatements 63 Internal Control AU C 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement Auditor is required to exercise professional judgment to determine the extent of the required understanding of the entity Obtain and review Plan documents and amendments to understand the provisions of the plan Contract agreements to understand services provided to the plan Trust statements List of related parties and parties in interest Communications with regulators 64 32

33 Entity s Internal Control Structure Obtain an understanding of: Control environment Entity s Risk assessment process Information system, including the related business processes relevant to financial reporting and communication Control activities relevant to the audit Monitoring of controls Document the understanding of the internal control structure 65 GAAS Requirement Auditor must understand each of the five components of internal control sufficient to plan the audit Obtain via tests of design AND Determining whether they have been placed in operation Required for ALL audits even if control risk is planned at maximum 66 33

34 Examples of Potential Controls Activities that may include both manual or IT controls Payroll, HRIS or benefit systems that information such as salary, hours worked, demographics, date of hire or date of termination Transmitting information between the plan sponsor s systems and service organizations Approving, monitoring and valuing plan investments Monitoring information provided by service organizations Monitoring outsourced activities Financial statement preparation and closing process Maintaining the plan s tax advantaged status Maintaining substantial compliance with applicable laws and regulations 67 Impact of Service Organizations on Plan s Internal Control AU C 402 Audit Considerations Relating to an Entity Using a Service Organization Who has control of the assets and participant accounts? Who maintains participant and investment records? Bank Insurance company Investment Advisor Recordkeeper 68 34

35 Service Organizations SSAE No. 16, Reporting on Controls at a Service Organization Only contains guidance for service auditors Three reports, SOC 1, SOC 2 and SOC 3 AU C 402, Audit Considerations Related to an Entity Using a Service Organization Only for user auditors Audit Tool Documentation of Use of a Type 2 Service Auditor s Report in an Employee Benefit Plan Financial Statement Audit 69 SOC 1 Reports Type 1 and Type 2 reports Service auditor obtains the same level of evidence and issues examination level opinion Restricted to user entities that are customers of the service organization and user auditors Primarily an auditor to auditor communication Provides user auditors with information about controls at a service organization that are relevant to the user entities financial statements 70 35

36 Audit Procedures Relevant to Internal control of the Service Organization Obtaining and reading the type 1 or type 2 SOC 1 report if available If a SOC report is not available Contacting the service organization, through the user entity, to obtain specific information Visiting the service organization and performing procedures that will provide the necessary information about the relevant controls at the service organization Using another auditor to perform procedures that will provide the necessary information about the relevant controls at the service organization 71 Evaluation of a Type 2 SOC 1 Report to Reduce Substantive Testing Need to document in the workpapers Service auditor s professional competence and independence Adequacy of the standards under which the report was issued That the report date is for a period that is appropriate for the user auditor s purposes The sufficiency and appropriateness of the evidence provided by the report for the understanding of the user entity s internal control relevant to the audit Determine whether there are any complementary user entity controls identified by the service organization and test those user controls 72 36

37 Characteristics Consideration of Fraud Description of Fraud Incentive or pressure to commit fraud Perceived opportunity to commit fraud An ability to rationalization the fraudulent action Misstatement Fraudulent reporting Misappropriation of assets 73 Consideration of Fraud AU C 240 Consideration of Fraud in a Financial Statement Audit Misstatements can arise from either fraud or error Management and those charged with governance are primarily responsible for the prevention and detection of fraud Requires the auditor to obtain reasonable assurance that the financial statements as a whole are free of material misstatement. Whether caused by error of fraud Not all frauds or errors can be detected by an audit 74 37

38 Requirements Auditor should maintain professional skepticism keeping in mind the possibility of fraud Investigate further any documents or records that may have been modified Investigate further when responses to inquiries of management or others are inconsistent or otherwise unsatisfactory Discussion with engagement team External and internal factors Risk of management override Circumstances that might lead to fraudulent financial reporting Professional skepticism How to respond to the susceptibility of a material misstatement due to fraud Discussion with Client regarding susceptibility of material misstatement due to fraud 75 Examples of Potential Fraud Investments that are valued using unobservable inputs Use of forfeitures Late remittances of employee deferrals Over or understated benefit obligations Payment of participant benefits Payment of administrative expenses Appendix F of the Audit Guide 76 38

39 Examples of Controls Board of directors or committee with oversight of the plan are qualified and diligent members Identification and education of the individuals who have fiduciary responsibility for the plan Involvement of qualified ERISA counsel Reputable outside service providers Appropriate oversight and management of service providers Preparation and review of reconciliations Segregation of duties and approval process 77 Audit Procedures Generally requires more substantive auditing procedures and documentation Risk of management override Analytical procedures Presumption that improper revenue recognition is a fraud risk Fraud risk for a benefit plan Misappropriation of assets Hard to value investments Fraudulent payment of claims and benefits 78 39

40 Questions???? 79 Investments and Related Income Audit Guide Chapter

41 Learning Objectives As a result you should be able to understand the various types of investments in employee benefit plans and to plan and perform appropriate audit procedures with respect to investments and related income in employee benefit plans. 81 Full Scope Vs. Limited Scope That s Easy! In a full scope audit you audit the investments In a limited scope audit you don t audit the investments So what s so difficult? 82 41

42 Limited Scope Definition Summary of DOL Regulations Where an audit is required, the financial statements accompanying the annual Form 5500 must be in accordance with GAAP Provides for an exclusion from the audit of investments (valuation and existence) and plan level investment activity, if qualifying institution holding the assets certifies to the accuracy and completeness of the information Qualifying Institutions Bank or similar institution (e.g., a trust company) Insurance carrier Regulated and supervised and subject to periodic examination by a State or Federal agency 83 Limited Scope Definition Summary of DOL Regulations Provides sample certification language to be used by the certifying institution The XYZ Bank (Insurance Carrier) hereby certifies that the foregoing statement furnished pursuant to 29 CFR (c) is complete and accurate. Indicates that certification extends to ordinary business records of the certifying institution The certification must be signed by a person authorized to represent the insurance carrier or bank trust department 84 42

43 Why the Limited Scope Audit Made Sense in 1974 ERISA Regulations Pre ERISA environment: no protection for participants or for assets ERISA designed to ensure that participants are protected and that the assets exist and values are accurate Financial institutions Highly regulated organizations ERISA required plan assets to be held in a trust or an insurance contract Holding assets in a trustee s vault (versus the plan administrator s safe) provided more safeguards over the assets and protected the existence Trustee/custodians could provide a valuation independent of the plan sponsor Fair Value of plan assets were commonly part of trustee or custodian's ordinary business records Plan investments had readily determinable market values Plan & trust structures were less complex SSAE No. 16 Reports did not exist financial institutions did not want each plan s auditors coming in to review their internal controls Limited Scope was a negotiated report between the DOL, the financial institutions and the auditors 85 Professional Guidance FASB ASC 820, Fair value Measurements and Disclosure FASB ASC , Plan Accounting Defined Benefit Plans Investments FASB ASC , Plan Accounting Defined Contribution Plans Investments AS C 540, Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures 86 43

44 Relevant Assertions Investments and investment transactions are initiated in accordance with the established investment policies and comply with plan provisions All investments are recorded and exist All investments are owned by the plan, free of liens, pledges, and other security interests or, if not, whether the security interests are identified and properly disclosed All investments are valued as of the plan s year end in accordance with the applicable financial reporting framework 87 Relevant Assertions Investment principle and income transactions are recorded and properly valued in accordance with the applicable financial reporting framework Whether the plan has any intention to dispose of or terminate any investment agreements or contracts Derivatives are properly recorded as assets or liabilities Information about investments is properly presented and disclosed 88 44

45 What Can Go Wrong Investments recorded in the financial statements do not exist or are not owned by the plan Gains and losses on sales of investments are calculated incorrectly Investment income is recorded at an incorrect amount or is incomplete Investments are not properly recorded at fair value as of the reporting date due to the use of inappropriate valuation methodologies, mathematical errors in the application of the methodology, or inaccurate inputs 89 Example Audit Procedures Obtain an analysis of changes in investments during the period. The confirmation of existence and ownership includes an indication that there are no liens, pledges, or other encumbrances, and is to be received directly from the trustee or custodian. Obtaining a certification is not appropriate for a full scope audit

46 Example Audit Procedures Test investment transactions by Determining that they were properly authorized. Examining brokers' advices, cash records, and other supporting documentation for the cost, selling price, quantity, identification, and dates of acquisition and disposal of the investments. Comparing prices at which purchases and sales were recorded with published market price ranges on the trade dates. Recalculating realized and unrealized gains and losses when such items are presented in the statement of changes in net assets available for benefits or in the notes to the financial statements. 91 Example Audit Procedures Confirm with the plan's trustee, custodian or co-trustee broker the status of any securities that are in transit. Test investment income, which may include testing a sample of dividends and interest earned during the period, applying analytical procedures, or a combination of both. Determining the extent of audit procedures when the nature and significance of investment income comes from sources other than dividends or interest. Determining whether accrued investment income during the period has been properly recorded

47 Example Audit Procedures Testing the fair value of investments by reference to market quotations or other evidence of fair value in accordance with AU-C section 501, AU-C section 540, or AU-C section 620. The following are examples of substantive audit procedures relating to the valuation of investments. Reviewing and evaluating the plan's methodology and procedures for estimating the fair value of investments, including those obtained from third party pricing services. Determining whether the plan's methods and procedures for estimating fair value were followed and are appropriate for the asset being measured. Testing the underlying documentation supporting the estimates. 93 Example Audit Procedures Testing transactions on dates selected from the period under audit for agreement with the values computed by the plan. When there are no quoted prices in an active market Evaluate whether the entity's method of measurement is appropriate in the circumstances. Auditors use professional judgment when making that evaluation. Obtain an understanding of management's rationale for selecting a particular valuation method. Determine whether the valuation method is appropriate in the circumstances given the nature of the item being valued. Test the computation of the net change in appreciation or depreciation of fair value of investments

48 Example Audit Procedures Reviewing subsequent events and transactions. Obtaining sufficient appropriate audit evidence about whether the disclosures in the financial statements related to accounting estimates are in accordance with the applicable financial reporting framework. 95 Common Types of Plan Investments Common stocks Mutual funds Common/collective trusts Unallocated Insurance contracts Pooled separate accounts US Government Securities Corporate bonds Master trusts holding any or all of these investment types 96 48

49 Types of Investments Which are Hard to Value Investment vehicles that provide higher returns and therefore higher risks for employee benefit plans Derivatives Emerging Market Funds Funds of Funds Hedge Funds Private Equity Debt Structured Notes Venture Capital LPs 97 Common and Collective Trusts CCTs Generally sponsored by a bank Similar to mutual funds but have no quoted market value--use net asset value valuation NAV Level 2 Plan acquires units of participation that represent an undivided interest in the underlying assets of the fund Purchase or redemption price of the units is based on the fair value of the underlying assets of the fund Auditor concerned with ownership, existence, and valuation of the units of participation 98 49

50 CCTs Audit procedures Obtain and read copy of contract Confirm directly with trustee the units of participation held Obtain a copy of most recent audited financial statements of the fund Obtain SOC 1 Type 2 Report Issues audited statements not as of the plan year end Fair value presentation with adjustment to contract value for CCTs that are stable value funds Must chose to select the use of NAV as a practical expedient for fair value 99 Contracts with Insurance Companies Investment contracts vs. Insurance contracts In an insurance contract the risk is shifted to the insurance company Investment contracts reported at fair value except for fully benefit responsive contracts of DC plans which are reported at fair value with an adjustment to contract value Deposit administration contracts (DA) Immediate participation guarantee contracts (IPG) Separate and pooled separate contracts

51 Insurance Contracts Allocated vs. Unallocated Allocated: Funding instruments can be individual insurance or annuity contracts. The insurance company is legally obligated to make all benefit payments for which it received the premiums. Allocated insurance contracts are not considered part of the assets of the plan 101 Insurance Contracts Allocated vs. Unallocated Unallocated: Funding instruments apply to any arrangement under which employer contributions to the plan are held in an undivided fund until they are used to meet benefit payments as they come due or to purchase annuities for participants at retirement or termination Unallocated insurance contracts remain as part of the assets of the plan

52 Audit Procedures for Insurance Contracts Obtain and read copy of the contract Confirm contributions or premiums made to the fund or account during the year Determine reasonableness of the interest rate Determine that the annuity purchases were made on the basis of stipulated contract rates Obtain and review most recent audited financial statements many times no financial statements Obtain SOC 1 type 2 report Fair value may equal contract value 103 Pooled Separate Accounts PSA s Generally sponsored by an insurance company Several plans participate in PSA s Similar to mutual funds but have no quoted value use NAV Level 2 investments Assets of the separate account are assets of the insurance company but are not commingled with the insurance company s general assets Purpose is to allow flexibility in the investment of plan funds

53 PSA s Audit procedures similar to CCT s Obtain and read copy of contract Confirm directly with insurance company the units of participation held Obtain a copy of the most recent audited financial statements of the account Obtain SOC 1 type 2 report Issues Many times no audited financial statements Audited statements are not as of the plan year end Use of NAV as practical expedient for fair value 105 Master Trusts A combined account for companies that sponsor more than one employee benefit plan A bank ordinarily serves as trustee, or custodian, and may have discretionary control over the assets Each plan has an interest in the assets of the trust and ownership is represented by a record of proportionate dollar interest, by units of participation, or specific identification Master trusts are not required to be audited under ERISA, however appropriate audit procedures apply to individual plans with assets invested in a master trust Apply the same auditing procedures that you would when auditing investments

54 Hard to Value Investments Hard to value investments definition is broad: It s all about how easy or difficult it is to corroborate the value of the investment When evaluating hard to value investmentsthere are three key questions: 1. What does the plan hold marketable or non marketable securities? 2. How are they held directly or indirectly? 3. What is the valuation methodology? May need to hire a valuation specialist 107 Hard to Value Investment Means Hard to Audit Investments No quoted market values Thinly traded High fees Difficult to exit Generally not regulated Many times no audited financial statements or may only have non GAAP financial statements tax basis Stale information or lack of detailed investment information

55 Limited Scope Audits What Procedures Are Not Performed? No audit procedures are performed on investments (and related activity) covered by certification No assessment of internal controls No confirmation procedures except for allocation and investment elections No reliance on SOC 1 Type 2 reports for investment or investment income (except for allocation and investment election controls) 109 Limited Scope Auditor s Responsibilities Determine if the financial institution qualifies for limited scope audit treatment Compare the certified investment information to the form and content of the financial statements and footnote disclosures Determine that the financial statements and disclosures are in compliance with GAAP and DOL requirements Determine that investments comply with ERISA and plan documents Test income allocations to participants Make sure 5% of net asset disclosure is made certification footnote is included in financial statements which references what information was covered by the certification

56 Limited Scope Auditor s Responsibilities Proper presentation and disclosure Inquire if plan s certified investments are valued at fair value as of the end of the plan year Inquire as to the mythology for valuing plan investments to determine if footnote disclosures are complete and accurate Inquire if plan investments include securities lending 111 Limited Scope Auditor s Responsibilities Participant Income Allocation Testing Tested in limited scope audit as allocations are not certified Consider using investment returns for month or quarter Some firms test only allocations of interest and dividends Cannot solely rely on a SOC 1 Type 2Report A SOC 1 Type 2 Report can be used to reduce testing but not eliminate it need to document reliance on such report

57 Impact of ASU 820 Limited Scope Audits ASU 820 Fair Value Measurements requires a better understanding of the custodial pricing processes Requires communication with the trustee or custodian to determine pricing methodologies used in order to facilitate disclosure of Level 1, 2 & 3 pricing inputs Requires an understanding of the nature of the investment, whether it is a partnership interest, an illiquid security, etc Hard To Value Investments in a Limited Scope Audit Obtain an understanding as to the methodology for determining the fair value of the investments Inquire of the plan sponsor if the value stated in the trust statements is based on values as of the financial statement date If the certification does not cover the hard to value investments then full scope audit procedures will need to be performed for those investments or modify report per AG Inquire as to securities lending arrangements as may not be certified

58 Limited Scope vs. Full Scope Audit Procedures Limited Scope Full Scope Confirm assets directly with custodian X Agree the certified investment information to the X Plan s financial statement Year-end market value testing and leveling X Investment Transaction Testing X Test investment income allocation to participants X X Determine that the Plan s financial statement and disclosures are in compliance with GAAP X X 115 A 1 Retirement and Investment Services The information provided on the enclosed reports is a summary of the financial activity for MRM 401(k) Plan for the plan year ended December 31, Life Savings Insurance Company certifies that the forgoing statement furnished pursuant to 29 CFR (c) is complete and accurate in accordance with its business records. Vice President Account Management Services A 1 Retirement and Investment Services

59 Limited Scope Opinion Certifications Are certifications actually complete and accurate? Does the institution actually hold the investments and execute investment transactions? What is the auditor s responsibility related to the reliability of the certification? What additional procedures need to be performed? Will the DOL accept a modification to the standard limited scope opinion? 117 Issues with Certifications Not certified as to fair value Fair value not certified as of the plan s year end Regulations only require certification to be based upon the ordinary books and records of the trustee or custodian No mention of fair value Regulations require investments to be reported on Form 5500 at fair value regardless of what is certified Limited scope may not be appropriate

60 "Ordinary Business Records" DOL Regulations require: " such information as is contained within the ordinary business records of the bank, trust company, or similar institution and is needed by the plan administrator to comply with the requirements of section Ordinary business records may be best available values, which may or may not be fair value! 119 Limited Scope Audit Issues Indicators that there may be additional information required Cost equals fair value for certain investments Fair value for certain investments have not changed for several years Description of investments on the Schedule of Assets is inconsistent with footnote for investments Certain investments are not included in the certification

61 Limited Scope Auditor s Responsibilities If something unusual comes to your attention bring matter to the attention of plan management If material discrepancies noted, plan management should investigate and consider: Requesting trustee/custodian to correct and either recertify or amend the certification If information is excluded, the plan administrator is responsible for proper valuation and reporting Engage the auditor to perform full scope audit and/or full scope procedures, as appropriate See Audit Guide Investment information Not Prepared in Conformity With GAAP and DOL Regulations If plan administrator is unable to determine the fair value of alternative investments, the financial statements may not be in accordance with GAAP and DOL Requirements: Auditors report would have to be modified Add emphasis of matter paragraph to auditors' report for a limited scope engagement which would discuss the effects of not applying adequate valuation procedures The auditor cannot perform valuation procedures for the plan in order to determine the fair value of alternative investments without impairing the auditors independence

62 Fair Value Measurements and Disclosures Are Management's Responsibility For all audits Management needs to: Establish an accounting and financial reporting process for determining the fair value measurements and disclosures Select appropriate valuation measurements Identify and adequately support any significant assumptions used Prepare the valuation Ensure that the presentation and disclosure of fair value measurements are in accordance with GAAP 123 Questions????

63 Auditing Cash Balances, Participant Accounts and Allocations, Contributions and Participant Data Audit Guide Chapters 5 & Learning Objectives Upon completion you should be able to plan and perform appropriate audit procedures with respect to cash balances, participant accounts and allocations, plan contributions and participant data

64 Cash Balances Relevant Assertions All cash balances are recorded and exist The cash balances are owned by the plan and are free of any restrictions The cash balances are properly presented and disclosed in the financial statements (for example presented as an investment or non interest bearing cash.) 127 What Can Go Wrong Cash clearing accounts, suspense accounts, or cash disbursement accounts, may be omitted from the financial statements or trust statements Cash transactions or balances in bank statements may not reconcile to the plan s financial statements Ending cash balances from the prior year may not agree to beginning cash balances Plans may have significant amounts of cash held by the trustee or custodian outside of the plan due to uncashed checks. This cash may not be properly accounted for in the plan s financial statements. Cash could relate to ERISA spending accounts

65 Example Audit Procedures Cash balances represent cash on hand, in transit, or held by third parties. For material cash balances held by the plan, substantive audit procedures such as those customarily performed in audits of other entities are normally appropriate. Inquire of plan management as to any omitted balances that may be held by the plan sponsor, trustee or custodian. Inquire as to ERISA spending account arrangements 129 Contributions Defined Contribution Plan Employer contributions Employee contributions Rollover contributions Catch up contributions Roth contributions 403(b) plans have additional contributions 15 years of service have an additional deferral limit Allowable contributions for terminated employees for up to 5 years following severance Defined Benefit Plans Employer contributions Employee contributions (rare)

66 Defined Contribution Plans 131 Participant Accounts and Allocations Relevant Assertions Whether net assets have been properly allocated to the individual participant accounts in accordance with the plan instrument. Whether the sum of the participant accounts (including the forfeiture account) reconciles with the total net assets available for plan benefits. Whether participant transactions are authorized and have been executed at the proper amount, in the proper period, and in accordance with the plan documents and the participant s direction

67 What Can Go Wrong Participant investment options or salary deferral amounts may not be in accordance with their stated elections causing the participant s account to be over or understated. Allocations of income or expenses may be inaccurate causing the participant s account to be over or understated. Lack of reconciliations or improperly prepared reconciliations by management could result in missing contributions or improper allocations. 133 Example Audit Procedures Obtain an understanding of how allocations are to be made. Test the allocation of investment income or loss, administrative expenses, and amounts forfeited for a sample of participants. Test the allocation of the employer's contribution and transfers by participants between investment options. For plans with participant contributions, determining whether individual contributions are being credited to the proper participant account and to the investment choices selected by the participant, if applicable. Determining whether the sum of individual participant accounts, including forfeiture balances, reconcile with the total net assets available for benefits held in the trust. Inquiring of plan management about the complaint process and if applicable reviewing complaint information provided by the service providers

68 Example Audit Procedures Where participants make contribution or investment elections by telephone or electronic means, consider confirming contribution deferral percentages and source (pretax or post tax) and investment elections directly with the participant or compare to a transaction report, that has been tested in the type 2 SOC 1 report. If such evidence is not available then the auditor generally would need to perform substantive tests of the investment income allocation to individual participant accounts. Dividend and interest allocations generally should also be tested. 135 Allocation Testing Can be Challenging As most participant directed plans are valued on a daily basis and systems are fully automated; the need to test the daily change in the value of investments may not be necessary when controls are sufficiently tested in a type 2 SOC 1 report of the recordkeeper and are appropriately documented. When an adequate type 2 SOC 1 report is available participant statements can be reviewed analytically (scanning analytic) to determine that a reasonable allocation of income was made

69 Contributions and Participant Data Relevant Assertions Amounts received or due the plan have been appropriately recorded and disclosed in the financial statements in conformity with the plan s provisions and in accordance with the applicable financial reporting framework. An appropriate allowance has been made for uncollectible plan contributions receivable Participant s transactions are authorized and have been executed at the proper amount, in the proper period, and in accordance with the plan s provisions and at the participant s direction. 137 Contributions and Participant Data Relevant Assertions (continued) All active participants (participants who are contributing to the plan or are eligible for the employer contribution) have been properly included in the employee eligibility reports and contribution records. Appropriate and accurate participant data, including payroll information, is being utilized in determining amounts contributed to the plan

70 What Can Go Wrong Employees are not appropriately included or excluded based upon the plan s provisions (for example, age or service requirements not met, part time or leased employees). Employer or employee contributions are not properly calculated, authorized or recorded in the proper period. Employee and employer contributions are incorrect due to the use of a definition of compensation different than what is specified in the plan s provisions including the application of true up contributions. 139 Example Audit Procedures Employer Contributions Determine whether the different types of contributions are in accordance with the rate or formula specified by the plan s provisions. Obtain and review a three way reconciliation of total contributions from the trustee reports to (i) the contributions per the plan sponsor s payroll or other records and to (ii) the contributions per the recordkeeper s reports such as the participant account summary. Apply appropriate analytical procedures Test forfeited nonvested participant accounts, Vouch contributions to wire transfer notices or other supporting evidence

71 Example Audit Procedures Employer Contributions (continued) Determine that the accruals have been recorded in accordance with the applicable financial reporting framework. Trace the subsequent receipt of contributions receivable to supporting documentation. Obtain a schedule of or inquire of plan management about the timeliness of employee salary deferral contribution remittances (and loan repayments, if applicable) to the plan and, if necessary, applying additional audit procedures. 141 Example Audit Procedures Employee Contributions Obtain a listing of participants with contributions for the current period by type of contribution and select a representative sample of participants and types of contributions to perform the procedures the following: Determine that the individuals are eligible to participate in the plan and elected to join the plan or were enrolled automatically in accordance with plan provisions. Agreeing demographic data (for example, age and period of service with employer) maintained by the recordkeeper to personnel files or other supporting evidence maintained by the plan sponsor

72 Example Audit Procedures Employee Contributions (continued) If a plan is contributory, reviewing the enrollment form or other evidence of enrollment and determining that the participant authorized the deferral rate or deferral amount. Verify the contributions were in accordance with plan provisions, including proper definition of compensation and automatic deferral rates. Obtain compensation or hours worked from the payroll records and recalculating contributions that are based on compensation or hours worked, including matching contributions that are based on amounts deferred by participants. 143 Example Audit Procedures Employee Contributions (continued) Test that contributions are arithmetically correct and that the contribution rate or formula specified in the plan document was used. Determine that contributions were recorded in the proper participant s account and in the proper investment option selected by the participant. Determine that contributions were properly included in amounts remitted to the trustee or custodian

73 Example Audit Procedures Payroll and HRIS Information Determine that the compensation and hours per the payroll records represents actual compensation paid and hours worked based on appropriate supporting evidence. Reconcile compensation from the payroll records to the plan sponsor s general ledger. If participant files are maintained on a decentralized basis or in the custody of the plan administrator, test whether the data maintained in those files corresponds to the data maintained in employer payroll and personnel files. 145 Other Considerations Rollovers from other qualified plans Catch up contributions Roth contributions Forfeitures

74 Rollover Contributions Review plan document to determine that the rollover is allowed by the plan s provisions and properly classified. Consider obtaining a schedule of rollovers and reconcile to the plan s financial statements. Test that the participant s investment elections have been complied with, if applicable. Review participant recordkeeping account to determine that the rollover amount is properly reflected (for example, pre tax, post tax, or Roth). 147 Catch Up Contributions $5,500 limit for 2014, $6,000 limit for 2015 Participant must be making contributions to the plan Age 50 or older by the end of the calendar year

75 Roth Contributions Plan document needs to be amended to allow for Roth 401(k) contributions Contributions are subject to the same limits as traditional contributions Changes in the law allow more individuals to contribute to the a Roth 401 (k) There is no tax deduction for contributions to a Roth 401(k) as contributions are after tax Income needs to be tracked separately 149 Forfeitures Relevant Assertions Forfeiture amounts held in suspense accounts are properly recorded and exist. Forfeiture accounts are properly presented and disclosed in the financial statements (for example shown as a reduction of employer receivables). Forfeiture amounts are used only in accordance with the plan document. Future employer contributions Pay administrative expenses Reallocate to participants

76 What Can Go Wrong Forfeitures being incorrectly allocated to individual participant accounts or investment funds. Unvested amounts are not being calculated correctly. Forfeitures not being used in accordance with the plan document or the applicable regulations. A plan can have a partial termination 20% or greater of the participants have been involuntarily terminated and participants are not 100% vested as required by the regulations. 151 Example Audit Procedures Review the plan s provisions to determine how plan forfeitures may be used Obtain a detail of forfeiture activity and trace activity to supporting documentation and summaries of reallocations to remaining participants. Consult the plan s ERISA counsel or advisor regarding forfeitures that appear not to have been properly used in accordance or used in a timely manner. Review results of procedures performed for contributions and distributions which relate to the testing of forfeiture calculations and allocations

77 Defined Benefit Plans 153 Relevant Assertions (in addition to the assertions for a DC plan) Amounts received or due the plan has been appropriately determined in accordance with ERISA funding requirements. All covered employees have been properly included in the employee eligibility reports and contribution records. Appropriate and accurate participant census data is being utilized by the plan s actuary in determining accurate benefit obligations

78 What Can Go Wrong The amount contributed is outside the minimum and maximum contribution range determined by the actuary. The contribution range determined by the actuary is misstated due to unreasonable assumptions or incorrect asset values Contributions receivable are not recorded or are recorded in the wrong period. Differences between reported employer contributions in the financial statements, the actuarial report or the Schedule SB or MB of the Form 5500 are not appropriately evaluated. 155 Example Audit Procedures Obtaining a schedule of contributions received and receivable by funding date and test for clerical accuracy and compliance with the plan s provisions and to the plan's cash receipts records, bank statements or trustee reports. Trace employer contributions to the plan sponsor s books and records, authorization for the contribution, deduction on the plan sponsor s tax return, plan sponsor s financial statements, the Schedule SB or MB to the Form 5500 and to the prior year receivable as applicable

79 Example Audit Procedures Determine that the contributions meet the minimum funding requirements of ERISA as determined by the plan s actuary. Obtain compensation or hours worked from the payroll records and recalculate contributions that are based on compensation or hours worked. For contributory plans, obtain and review a reconciliation of current period compensation from the payroll report used to test contributions to the plan sponsor s general ledger. Recalculate the amount contributed (i.e. salary times rate) in accordance with the plan document. 157 Questions????

80 Distributions, Census Data and Plan Benefit Obligations Audit Guide Chapters 5 and Distributions Learning Objectives Be able to understand the types of withdrawals and benefit payments and be able to plan and perform appropriate audit procedures with respect to such distributions. Be able understand what expenses are appropriate for a plan and be able to plan and perform appropriate audit procedures. Benefit Obligations Be able to plan and perform appropriate audit procedures with respect to participant census data and valuation of benefit obligations in a defined benefit plan

81 Types of Distributions Termination/cash out/rollover Participants can elect to take their account balance when they terminate employment with the Company Plan sponsors can force out balances for terminated participants if the account balance is < $1,000 or force to an IRA if < $5000) Participants can take their balance in cash (which would be taxable) or roll the amount into another qualified plan such as an IRA or their new employer s plan. Retirement Participants may take their account balance when they reach retirement age Loans Participants may borrow from their account amounts not subject to income tax if repaid 161 Types of Distributions Hardship Withdrawal If certain financial hardship provisions met, can take a withdrawal while still employed but amount subject to income tax In Service Withdrawal After attaining 59 ½, participants can request a distribution from their account while still employed. Income tax will be triggered unless the amounts are rolled over into an IRA Required Mandatory Distribution (RMD) In general, participants must begin withdrawing money by April 1 of the year following the year that you turn 70½. QDRO (Qualified Domestic Relations Order) A judgment, decree or order that creates or recognizes an alternate payee s (such as former spouse) right to receive all or a portion of a participant s account balance or retirement benefit Administrative Expenses Plan expenses for the operation of the plan which are authorized by the plan document

82 Vesting Participant s right to company contributions that have accrued in their individual account. Cliff vesting provides that company contributions will be fully vested only after a specific amount of time and that employees who leave before this happens will not be entitled to any of the company contributions. In plans with graduated vesting, vesting occurs in specified increments. Generally vesting is graduated and is for 5 years or less Safe Harbor Plans fully vested at time of contribution 163 Benefit Payments Relevant Assertions Whether the payments are in accordance with the plan provisions and related documents for benefit payments, hardship withdrawals, in service withdrawals, and qualified domestic relations orders (QDROs). Whether the payments are made to or on behalf of persons entitled to them and only to such persons (that is, that payments are not being made to deceased beneficiaries or to persons other than eligible participants and beneficiaries). Whether transactions are recorded in the proper account, amount, and period. Whether the payments are presented and disclosed in accordance with the applicable financial reporting framework

83 What Can Go Wrong Benefit payments or withdrawals are not properly authorized or are not in accordance with the provisions of the plan document. Payment of benefits or withdrawals to participants are not recorded or recorded in the incorrect amount. Benefit payments per trustee do not agree to recordkeeper. Benefit payments are calculated incorrectly (nonrecognition of loans or vested balance). Benefit payment calculations are based on incorrect census data, incorrect actuarial inputs, calculated incorrectly or not in accordance with the participant s benefit election. 165 Example Audit Procedures For selected participants receiving benefit payments Review the plan document to understand the plan benefit and withdrawal provisions. Examine authorization of distribution whether through the participant's withdrawal election form or a plan initiated distribution event. Examine the type and amount of payment and propriety of required approvals. Evaluate the participant's or beneficiary's eligibility Recompute benefit payments based on the plan instrument and related documents, option elected, age, and pertinent service history

84 Example Audit Procedures For selected participants receiving benefit payments Recompute forfeited participant balances based on the vesting provisions of the plan and pertinent service history. Determine that future participant contributions and company match, if applicable, are suspended after a hardship withdrawal is granted for the specific period of time. Compare the benefit payment amount to cash disbursement records or trustee reports. If the benefit is in the form of an annuity which has been purchased through an insurance contract, trace or reconcile the amount to the schedule of insurance contacts to determine the annuity contract has been properly calculated and is consistent with the terms of the contract. 167 Example Audit Procedures For retirees or beneficiaries receiving recurring benefits, trace name, type of benefit and amount to participant data list to determine that new retirees or beneficiaries were properly classified in the retired category by the actuary. Applying appropriate analytical procedures such as comparing recurring payments by month to prior year monthly payments and comparing results to expectations based on plan provisions For benefit payments received directly by participants, test receipt of the benefit payment by confirming payment of benefits with selected participants or beneficiaries, comparing canceled checks with the plan's cash disbursement records, or comparing the payee name or account name on electronic funds transfers to the participant or beneficiary name

85 Example Audit Procedures For cash balance or pension equity plans, review the accumulation of the participants' hypothetical "accounts" including the interest rate credited to determine if the accumulation and interest rate is in accordance with the terms of the plan document. Evaluate whether procedures exist for determining the continued eligibility of participants or beneficiaries to receive benefits; to assure that individuals are removed from the benefit rolls upon death; and that payments made to individuals over an unusually long number of years are still appropriate. Obtain and test the reconciliation of total benefits paid per the disbursement register to the trustee reports and financial statements. Evaluate whether procedures exist for investigating longoutstanding benefit checks 169 Example Audit Procedures Payments made by third party administrators may require a SOC 1 Type 2 report Rolled over distributions to another qualified plan or an IRA examine evidence supporting the roll over and the rollover account is in the name of the participant or beneficiary For hardship withdrawals examine evidence supporting the need for hardship and determine if salary deferrals have be stopped For death benefits obtain death certificate For QDRO obtain court order

86 Notes Receivable from Participants ASU Not considered an investment for GAAP purposes Recorded as notes receivable from participants Measured at unpaid principal balance plus accrued but unpaid interest Fair value disclosures are no longer applicable Exempted from credit quality disclosures in ASU Still an investment for ERISA purposes Recorded as an investment on Schedule of Assets (held at end of year) and Form 5500 Schedule H Can still be certified if applicable Reconciliation to Form 5500 may not be necessary 171 Issues Reporting Issues How to record interest on statement of changes What to do with loans in default What to do with deemed distributions

87 Notes Receivable from Participants (Chapter 5 of AG) Relevant Assertions All notes receivable from participants are properly recorded and exist. Notes receivable from participants are properly valued and disclosed in accordance with the applicable financial reporting framework. Notes receivable from participants are initiated in accordance with the plan s provisions 173 What Can Go Wrong Loans are not initiated in accordance with the plan s provisions and therefore not recorded properly. Loan details (such as amount, repayment period, interest rate, and residential or non residential loan) are incorrectly entered into the recordkeeper system. Loan repayments are not properly calculated or properly withheld from payroll on a timely basis

88 Audit Procedures Examining documentation supporting the issuance of the participant loan in accordance with the plan s provisions. Confirming participant loan balances and terms directly with plan participants. Testing that loan repayments and interest income is properly calculated and recorded. Obtain a roll forward of participant loans from the recordkeeper. Test the reconciliation of loan activity from the roll forward to the trustee (custodian) statement, including new loan disbursements, loan principal payments, loan deemed distributed and ending balance. 175 Audit Procedures For individuals who qualify for a loan from the plan, determining that the loan is made in accordance with the plan s loan policy and has been properly segregated in the individual s account

89 Administrative Expenses Relevant Assertions Plan expenses are paid in accordance with the plan provisions and are properly authorized. Plan expenses are paid in accordance with service provider agreements. Plan expenses are recorded in the proper account, amount and in the proper period. Whether plan expenses are presented and disclosed in accordance with the applicable financial reporting framework. Whether the required DOL disclosures have been made regarding expenses 177 What Can Go Wrong Plan expenses do not represent allowable expenses per the plan document or regulatory provisions. Plan expenses are paid to fictitious vendors. Plan expenses are not properly accrued or are not properly classified

90 Example Audit Procedures Review the terms of the plan instrument to determine that expenses were properly authorized and allowed by the plan. Inquire of plan management regarding compliance with fee disclosure requirements for direct and indirect fees Perform analytical procedures for recurring types of expenses that are routinely paid out of the plan from year to year. Analyze the expenses and examine supporting invoices, documents, and computations. 179 Example Audit Procedures Review the service agreement and test to ascertain that the contracted services were performed and that the payments were in accordance with the terms of the agreement. Determining that fees charged by trustees, investment advisors, and others are in accordance with the respective agreements and the regulations. In multiemployer plans trustees may be reimbursed by the plan for meetings and for other expenses associated with the plan s operations. Hot button for DOL and IRS

91 Accumulated Plan Benefits and Participant Census Data Relevant Assertions Participant census data used in the actuarially computed present value of accumulated plan benefits is complete and accurate. Actuarial assumptions are in accordance with FASB ASC 960 requirements Actuarial present value of accumulated plan benefits, components of those benefits, and amounts of changes in the actuarial present value of accumulated plan benefits as determined by the actuary, are properly presented and disclosed in the financial statements in accordance with the applicable financial reporting framework and are appropriately determined by the plan actuary. 181 What Can Go Wrong Actuary does not have the appropriate qualifications or related experience to perform the valuation. Participant groups are inappropriately excluded or included from the census data. Benefits paid per the actuary do not agree with benefits paid per the trustee or the plan sponsor. Plan amendments have not been properly included or excluded depending on the valuation date. Accumulated plan benefit assumptions are not based on the plan provisions, plan experience, are inappropriate or are unreasonable

92 Example Audit Procedures Evaluate the professional qualifications of the actuary Obtain an understanding of the actuary's objectives, scope of work, methods, and assumptions, and their consistency of application. Ascertain whether the method and assumptions used in the accumulated plan benefit information are in accordance with FASB ASC 960. Inquire whether the actuarial valuation considers all pertinent provisions of the plan, including any changes or amendments to the plan or other events affecting the actuarial calculations. 183 Example Audit Procedures Inquire about the nature of any relationship the actuary may have with the plan or the plan sponsor that may impair objectivity. Test the reliability and completeness of the participant census data and plan asset data used by the actuary in the actuarial valuation. Confirm aggregate participant data used in the actuarial valuation directly with the plans actuary. (The auditor may include this request as part of the audit inquiry letter to the plan's actuary.) In addition, the auditor may also confirm information related to selected individual participants census data that is part of the aggregate amounts

93 Example Audit Procedures Cash Balance Plans Test the interest rate used in the current year s interest credit to determine that it complies with the provisions of the plan. Test a sample of participants earnings and appropriate factors used for the compensation credit to determine that it complies with the provisions of the plan. 185 Questions????

94 Party in Interest Transactions, Prohibited Transactions, and Plan Tax Status Audit Guide Chapters Learning Objectives Upon completion of you should have an understanding of the following: Who is a party in interest How to identify a party in interest and a prohibited transaction What audit procedures to perform and impact on the auditor s report Auditor s responsibility related to Plan tax status

95 Generally Accepted Auditing Standards Because of the inherent limitations of an audit, some material misstatements in the financial statements may not be detected, even though the audit is planned and performed in accordance with GAAS. Auditor s need to be aware of the possible existence of material related party transactions as well as non exempt party in interest transactions that could impact the financial statements 189 Professional Standards Related Party Transactions FASB ASC 850, Related Party Disclosures AU C 550, Related Parties AU C 250, Consideration of Laws and Regulations in an Audit of Financial Statements Prohibited Transactions AU C 250, Consideration of Laws and Regulations in an Audit of Financial Statements FASB ASC 450, Accounting for Contingencies AU C 240, Consideration of Fraud in a Financial Statement Audit

96 Party In Interest Transactions ERISA Section 3(14) Fiduciaries or employees of the plan Person providing services to the plan Employer whose employees are covered by the plan Person who owns 50% or more of such an employer or relatives of such persons 191 Related Parties FASB 850, Related Party Disclosures Related parties are generally parties in interest Related party transactions may not necessarily involve accounting recognition Related party transactions do not necessarily violate ERISA AU C 550, Related Parties Auditor s responsibility relating to related party relationships and transactions Responsibilities to identify, assess, and respond to risks arising from the plan s failure to appropriately account for or disclose related party relationships, transactions or balances

97 ERISA section 406(a) Forbids certain transactions between the plan and parties in interest Sale, exchange or lease of property Loan or other extension of credit (includes untimely deposits to the trust of employee salary deferrals) Furnishing of goods, services or facilities Transfer of plan assets for the benefit of a party in interest Acquisition of employer securities or real property in violation of the 10 percent limitation for certain types of plans Not having a written agreement with a service provider could be a prohibited transaction ERISA Regulation 408(b)(2) 193 Party In Interest Transactions Impact the following audit areas: Planning and performing the audit to identify all material party in interest relationships and transactions Required disclosures and possible recorded account balances Possible report modifications if a prohibited transaction has occurred and is not properly disclosed

98 Related Party and Party in Interest Transactions Audit Procedures The auditor should inquire of management regarding the following: The identity of the plan s related parties or PIT s, including changes from the prior period The nature of the relationships between the Plan and these parties Whether the plan entered into any transactions with these parties during the period and, if so, the type and purpose of the transactions Controls that management has established to: Identify, account for, and disclose such relationships and transactions. Authorize and approve significant transactions and arrangements or outside of the normal course of business. 195 Identifying Related Parties or Party In Interest Transactions Provide audit staff with names of such parties Determine if there are procedures in place to make sure that all service providers are aware of these parties Review committee minutes Review correspondence with regulatory agencies Review invoices from legal council Look for large, unusual transactions or nonrecurring transactions Review agreements and transactions with the plan s major service providers, investees, etc

99 Audit Implications for PTs Obtain an understanding of the transaction How it occurred Sufficiency of other information Communicate with those charged with governance Consult plan s ERISA counsel or other specialists Apply similar procedures as for related party transactions or noncompliance with laws and regulations Test reasonableness of amounts being disclosed Auditor has a responsibility to deal with all prohibited transactions regardless of materiality 197 Prohibited Transactions Reporting Implications Financial impact of fines, penalties and receivables for money being paid back to the plan Adequacy of financial statement disclosures and supplemental schedule Contingencies may also need to be disclosed Consider the implications of the prohibited transaction in relation to other aspects of the audit Prohibited transactions must be disclosed on Schedule G, Part III of the Form 5500 Financial statement materiality does not apply to supplemental schedules

100 Late Deposits Not reported on Schedule G Late deposits recorded on Line 4a of the Form 5500 Reported on Supplemental Schedule 199 Audit Implications for Prohibited Transactions AU-C 350, requires the auditor to be alert to prohibited transactions AU-C 330, requires the auditor to assess and document the risk of material misstatement Auditor has the responsibility to deal with all prohibited transactions, regardless of quantitative materiality 100

101 DOL s Voluntary Correction Program Eligible for immediate relief from payment of certain excise taxes imposed by IRS Not required to report the corrected transaction as nonexempt on supplemental schedules of Form 5500 Full compliance with the program will result in the DOL s issuance of a No Action Letter and no imposition of penalties on the plan sponsor Disclosure is necessary if VFC has not yet been approved consult plan s legal counsel 201 Prohibited Transactions Proper disclosure not made: If material, express a qualified opinion on the report on the supplemental schedules If not material, include and other matter paragraph on the report on the supplemental schedules by disclosing the transaction If disclosure is not made, consider withdrawing from the engagement

102 Prohibited Transactions Audit implications of prohibited transactions: Reliability of management s representations Impact on specific control procedures Assure that appropriate plan management is adequately informed of prohibited transactions Include in AU C 260 and AU C 265 letters 203 Plan Tax Status Audit Guide Chapter

103 Plan s Tax Status Plan financial statements generally do not have accrued income taxes or a provision for income tax as qualified plans are granted special tax status For qualified retirement plans, these are the provisions of IRC Section 401(a) and related Code Sections. A 403(b) plan is subject to some of the same standards as a qualified retirement plan, but not all of these standards. To evidence tax exempt status, a qualified retirement plan may submit a request for a determination letter or rely on the opinion letter issued to the sponsor of a prototype plan. Currently there is no similar determination letter program for individually designed 403(b) plans only volume submitters. There is no requirement to receive an individual determination letter to claim tax exempt status. 205 Relevant Assertions Whether the trust is qualified under the IRC as being exempt from federal income taxes and whether transactions or events have occurred that might affect the plan's qualified status. Whether any income taxes, if applicable, have been properly recorded and disclosed in accordance with the applicable financial reporting framework. Whether or not plan management has taken an uncertain position that more likely than not would not be sustained upon examination by taxing authorities

104 Relevant Assertions Whether asserted and unasserted claims and assessments affecting plan assets resulting from the loss of tax exempt status have been properly recorded or disclosed in accordance with the applicable financial reporting framework. ERISA requires disclosure of information concerning whether or not a tax ruling or determination letter has been obtained. FASB ASC (f) requires disclosure of the federal income tax status of a plan only if a favorable tax determination has not been obtained or maintained. 207 What Can Go Wrong The plan document is not timely implemented, updated or amended. Failure to perform or incorrectly performing nondiscrimination and other operating tests. Failure to make corrections required to comply with annual compliance tests. Failure of a VEBA to test its reserve accumulations and exposure to UBTI. Failure to properly apply the plan s provisions such as: Contributions Distributions Vesting Participant loans

105 Example Audit Procedures Reviewing the IRS tax determination letter or IRS opinion letter or an opinion letter from the plan s qualified tax counsel or other ERISA advisor. Determining whether plan amendments have been made as a result of changes in the laws and regulations. Inquiring of the plan administrator, trustee, or other appropriate plan representative about the plan's or the trust's operations or changes in plan or trust design that may cause the plan or trust to lose its tax exempt status. Inquiring of plan management about the performance and results of required compliance testing for the specific type of plan. 209 Example Audit Procedures Reviewing the results of auditing procedures applied in other areas of the audit and considering the findings in relation to tax qualification requirements. Inquiring about the procedures applied by the plan administrator in determining UBTI. To the extent UBTI is generated by investments of the plan or pass-through entities, inquiring about the procedures to determine whether any uncertain tax positions have been taken Inquiring of the plan administrator regarding whether a Form 990-T has been filed and whether any required state filings have been made

106 Example Audit Procedures Obtaining a copy of the Form 990-T and related state filings, UBTI calculations, and supporting detail for the year, and testing as necessary. Verifying that UBTI for the year and the associated income tax accrual at year-end has been recorded in accordance with the applicable financial reporting framework. Obtaining a representation from management that the plan is qualified and the associated trust is tax exempt under the appropriate sections of the Internal Revenue Code. 211 Required Compliance Testing Minimum coverage test Minimum participation tests Average deferral limits not required for 403(b) plans Average contribution percentage limits Annual additions limitation Top heavy test Exclusive benefit rule Diversification of certain employer security holdings

107 What if Plan Fails Tests? Corrective Actions to Pass Requiring an additional contribution Refunding excess contributions No Corrective Action Plan tax status is jeopardized AU C 250 Non compliance with laws and regulations 213 Other Areas for Audit Emphasis Plan Design Plan Amendments Operational Issues Eligibility testing Contributions testing Distributions testing Use of forfeitures and vesting test work Income and expense allocation test work

108 What if Operational Issues are Found? Audit Procedures Have client quantify the error as to dollar impact on financial statements Determine if the amount is material to the financial statements and/or if disclosure is required Include in management representation letter how and when the error will be corrected Consider inclusion in AU C 260 and AU C 265 letters Depending on the nature and magnitude of the error modification of the report may be necessary 215 Questions????

109 Concluding the Audit and Other Audit Procedures Audit Guide Chapter Learning Objectives As a result you should be able to plan and perform appropriate audit procedures with respect to: Form 5500 Commitments and contingencies Litigation, claims and assessments Subsequent events Evaluate the risk of material misstatement due to fraud at or near the end of the audit Plan representations Communications with those charged with governance Communicating internal control matters

110 Professional Standards FASB ASC 400 and 450, Commitments and Contingencies AU C 502, Specific Considerations for Selected Items (legal letters) AU C 560, Subsequent Events and Subsequently Discovered Facts FASB ASC 855, Subsequent Events AU C 240, Consideration of Fraud in a Financial Statement audit AU C 580, Written Representations AU C 260, Communication with Those Charged with Governance AU C 265, Communicating Internal Control Related Matters Identified in an Audit AU C 230, Audit Documentation 219 Commitments and Contingencies Audit Procedures Discuss possible issues with plan sponsor or third party administrator Review minutes for contingent liabilities Review plan sponsor financial statements Analyze legal expenses for contingencies or prohibited transactions Inquire concerning any investigations by regulatory authorities Send inquiry letter to plan s ERISA counsel Obtain a management representation letter

111 Legal Letters Send when management has consulted legal counsel regarding plan matters Send near the end of field work or an updated letter may be required Should be sent to ERISA counsel Inquire regarding litigation, claims or assessments and plan qualification issues Obtain audit inquiry letter from in-house counsel, if applicable If no consultation include a statement in management representation letter Legal letter inquiry should include example language in Audit Guide 221 If No Consultation Obtain representation from management such as We are not aware of any pending or threatened litigation, claims, or assessments or unasserted claims or assessments that are required to be accrued or disclosed in the Financial statements in accordance with Statement of Financial Accounting Standards AU 502, and the plan has not consulted a lawyer concerning litigation, claims, or assessments

112 Subsequent Events Review committee meeting minutes through report date Supplemental legal letter may be required Review of any interim plan financial statements or trustee statements Review of any interim financial statements of the plan sponsor Inquire of client about any subsequent events 223 Types of Subsequent Events Examples Plan Mergers Plan Termination Plan Spin offs Changes in service providers Plan amendments

113 Specific Management Representations Plan amendments Intentions to merge or terminate the plan Omissions from participant data Acceptance of actuarial assumptions Whether the plan is qualified under the IRC Existence of related party and party in interest transactions Investments valued at fair value Timely deposits of employee deferrals Compliance testing 225 Responsibility to the Form 5500 Extends to the financial information in the Form 5500 Schedule H No obligation for other information on the Form 5500 Read Form 5500 for material inconsistencies with the audited financial statements (Schedules A, C, D, G, H and SB/MB) Materially inconsistent information should be revised If not revised, consider explanatory paragraph or withdrawal from engagement

114 Other Considerations Plan mergers Terminating plans Changes in service providers Actuaries Record keepers Auditors Appraisers Trustees 227 Communications with those Charged with Governance AU C 265, The Auditors Communication with Those Charged with Governance requires communication regarding The auditors responsibility with regard to the financial statement audit An overview of the planned scope and timing of the audit Significant findings from the audit such as The auditor s views about qualitative aspects of the plan s significant accounting practices, Significant difficulties, if any, encountered during the audit. Disagreements with management, if any. Other findings or issues, if any, arising from the audit that are significant and relevant to those charged with governance

115 Communications with those Charged with Governance Significant Findings from the Audit such as Material, corrected misstatements that were brought to the attention of management as a result of audit procedures. Significant findings or issues, if any, arising from the audit that were discussed, or the subject of correspondence, with management. The auditor s views about significant matters that were the subject of management s consultations with other accountants on accounting or auditing matters when the auditor is aware that such consultation has occurred. Written representations that the auditor is requesting. 229 Internal Control Related Matters AU C 260, Communicating Internal Control Related Matters Identified in an Audit Must be a written communication on a timely basis Should be made not later than 60 days following the report release date Requirement to communicate significant deficiencies and material weaknesses Requirement to include in specific matter that no material weaknesses were identified during the audit similar to those in the written communications Requited to communicate only to management other deficiencies in internal control identified during the audit Requirement to communicate an explanation of the potential effects of the significant deficiencies or material weaknesses identified

116 Questions???? 231 Reporting and Disclosure Requirements Audit Guide Chapters 5, 6and 11 Appendix C & D

117 Learning Objectives As a result you should be able to understand the financial statement reporting and disclosure requirements with respect to benefit plans and the reporting required for the Form Reporting and Disclosure Requirements Authoritative Literature Required Financial Statements Financial Statement Disclosure Requirements ERISA and DOL Reporting Requirements

118 Authoritative Literature and Other Tools FASB ACC 960 and 962 AS C 700, 705, 706 and 800 regarding different auditor s reports AS C 720, 725 and 730 regarding supplementary information AICPA Audit Guide current edition AICPA Audit Risk Alert current edition Trends and Techniques AICPA Disclosure Guides EFAST 2 Form 5500 filings 235 Supplementary and Other Information AS C 720, Other Information in Documents Containing Audited Financial Statements AS C 725, Supplementary Information in Relation to the Financial Statements as a Whole AS C 730, Required Supplementary Information

119 AU C 720 Addresses auditor s responsibility in relation to other information in documents containing audited f/s and the auditor s report there on Auditor s opinion on the f/s does not cover other information, and the auditor has no responsibility for determining whether such information is properly stated (absent a separate requirement) Auditor required to read the other information for material inconsistencies between the audited f/s and other information 237 AU C 725 Addresses the auditor s responsibility when engaged to report on whether supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole Information presented outside basic financial statements excluding required information Does not apply to DOL schedules In order to opine on whether information is fairly stated in relation to the financial statements as a whole Auditor to determine if certain conditions are met Auditor to perform certain procedures (using the same materiality level as used during the financial statements audit)

120 AU C 720/725 Applicability Full Scope Audit generally engaged to report on whether the supplementary information is fairly presented in relation to the basic financial statements (AU C 725) ERISA limited scope engagements Disclaimer being issued on basic financial statement therefore precluded from expressing an in relation to opinion on the supplementary information Since likely not engaged to issue an opinion Auditor still required to follow AU C Defined Contribution Pension Plans Statement of Net Assets Available for Plan Benefits Statement of Changes in Net Assets Available for Plan Benefits

121 Defined Benefit Pension Plans Statement of Net Assets Available for Plan Benefits Statement of Changes in Net Assets Available for Plan Benefits Information regarding the actuarial present value of accumulated plan benefits Information regarding year to year change in accumulated plan benefits 241 Disclosures In addition to the requirements in FASB ASC 235 Notes to Financial Statements: Basis of accounting (if other than GAAP) Use of estimates Notes Receivable from participants Investment valuation, assumptions and income recognition Payment of benefits Risks and uncertainties

122 Other Disclosure Requirements A description of the plan agreement, including vesting, allocation provisions, disposition of forfeitures, and benefit provisions. Significant plan amendments adopted during the year and the effect of such amendments on net assets if significant either Individually or in the aggregate. The basis for and method for determining contributions by employers and employees. Plans subject to the minimum funding requirements of ERISA, should disclose whether those requirements have been met. If significant costs of plan administration are being absorbed by the employer, that fact should be disclosed. The policy regarding the purchase of contracts with insurance entities that are excluded from plan assets. 243 Other Disclosure Requirements The federal income tax status of the plan, if a favorable determination letter has not been obtained or maintained. (ERISA plans require disclosure whether or not a tax ruling or determination letter has been obtained) Investments that represent 5% or more of total net assets as of the end of the year. Disclose information about the net assets and significant components of the changes in net assets relating to the nonparticipant directed programs with such reasonable detail. The change in fair value of each significant type of investment, including participant directed and self directed investments held in brokerage accounts

123 Other Disclosure Requirements For ESOP plans, investments pledged to secure debt of the plan as well as a description of the provisions regarding the release of such investments Significant related party and party in interest transactions, for example, employer stock or transfers between related plans., plan expenses, investments fee arrangements. As required by ERISA, an explanation of the differences between the information contained in the financial statements and the amounts reported on Schedule H, Form Guarantees by others of debt of the plan. Amounts allocated to accounts of persons who have elected to withdraw from the plan but have not yet been paid. 245 Other Disclosure Requirements The amount and disposition of forfeited nonvested accounts. Significant subsequent events that may affect the usefulness of the financial statements including the date Commitments and contingencies for example, future capital commitments for investments. Amounts paid to affiliates or related parties (such as advisory fees, administration fees, brokerage commissions, and sales charges) should be disclosed in accordance with FASB ASC 850. Other disclosures elsewhere in the guide (for example, see the master trust disclosures in chapters 5, 6, & 8)

124 Other Disclosure Requirements Fully benefit responsive investment contracts, in the aggregate: A description of the nature of those investment contracts, how they operate, and the methodology for calculating the interest crediting. The average yield earned by the plan A description of the events that limit the ability of the plan to transact at contract value with the issuer (for example, premature termination of the contracts by the plan, plant closings, layoffs, plan termination, bankruptcy, mergers, and early retirement incentives), A description of the events and circumstances that would allow issuers to terminate fully benefit responsive investment contracts with the plan and settle at an amount different from contract value. 247 FinREC Recommendations The accounting policy for corrective distributions Employer contributions relating to the correction of operational defects or other nonrecurring items. The amount of forfeitures available as of the end of the year and the amount of forfeitures used or allocated during the year. The significant terms of expense offset arrangements with third parties whereby expenses are netted against income. Expense offset arrangements generally consist of fees being paid to a third party service provider (for example, recordkeeper) directly through the use of investment fee rebates made available by the plan s separate third party investment manager

125 Disclosure Requirements DB Plan If the amendments were adopted after the date of the accumulated benefit information, and accordingly their effect was not included in the calculation, this fact should be stated Significant assumptions used in determining the actuarial present value of accumulated plan benefits or benefit obligations, including any significant changes in the method or assumptions during the year. 249 Disclosure Requirements DB Plan The funding policy and any changes in the policy during the year. Disclose their funded status with respect to any applicable minimum funding requirements and whether those requirements have been met. If a minimum funding waiver has been granted or is pending by the IRS or if a rehabilitation program has been established, that fact should be disclosed A brief description of the benefit priority and PBGC coverage in the event of plan termination

126 ERISA and DOL Reporting Requirements Comparative Statement of Net Assets Available for Plan Benefits Description of accounting principles Variances from GAAP Differences between financial statements and Form 5500 Identification and description of parties in interest relationships and transactions Supplemental schedules Additional information attached to the Form Form 5500 Reporting Supplemental Schedules (All part of Schedule G except Schedules 4a, 4i and 4j) Schedule G Part I Schedule of Loans or Fixed Income Obligations in Default or Classified as Uncollectible Part II Schedule of Leases in Default or Classified as Uncollectible Part III Nonexempt Transaction

127 Supplementary Schedules Schedule H, line 4a Schedule of Delinquent Participant Contributions (include participant loans) Schedule H, line 4i Schedule of Assets (Held at End of the Year) Schedule H, line 4i Schedule of Assets (Acquired and Disposed of Within the Plan Year) (schedule rarely required) Schedule H, line 4j Schedule of Reportable Transactions For participant directed transactions this schedule is not required 253 Example Financial Statements and Footnote Disclosures Audit Guide Appendix C and D