2012 MACPA EMPLOYEE BENEFIT PLANS CONFERENCE MAY 8, 2012 Department of Labor Update

Transcription

1 2012 MACPA EMPLOYEE BENEFIT PLANS CONFERENCE MAY 8, 2012 Department of Labor Update 1 Marcus J. Aron Senior Auditor Office of the Chief Accountant Employee Benefits Security Administration The views expressed are those of the speakers and do not necessarily represent the official position of the Department Regulatory Update 2 Fees and Expenses Investment Advice E-Disclosure Policy Definition of a Fiduciary Rule Apprenticeship & Training FAB 1

2 3 Sunshine is the Best Disinfectant Plans to Participants ERISA 404 Service Providers to Plans - ERISA 408(b)(2) Form 5500 Schedule C Fee & Expense Disclosures Plan to Participant (ERISA 404) Effective plan years beginning on or after 11/1/11 Requires fiduciaries to: Give workers quarterly statements of plan fees & expenses deducted from their accounts Give workers core information about investments available under the plan Use standardized methodologies when calculating and disclosing expense and return information 4 2

3 5 ERISA 404 Disclosures (continued) Centerpiece a requirement to provide investment-related advice in a format that permits workers to comparison shop among investment options DOL has developed a model chart for complying with this requirement The regulation, model chart, and fact sheet may be viewed at ERISA 404 Disclosures Initial Implementation Dates 6 First disclosure dates follow the effective date of the 408(b)(2) regulation Initial annual disclosure of plan level & investment-level info 8/30/12 First quarterly statements 11/14/12 3

4 Fee & Expense Disclosures Service Providers to Plans (ERISA 408(b)(2)) 7 Brings new transparency to the process of selecting and monitoring of plan service providers Establishes comprehensive disclosures from service providers concerning services, fees, and potential conflicts of interest Applies to contracts $1,000 Effective for contracts entered into on or after 7/1/12. Prior contracts must be brought into compliance by 7/1/12. ERISA 408(b)(2) Disclosures Service Providers Covered 8 Persons who provide services as an ERISA fiduciary or under the Investment Advisors Act of Persons who provide certain recordkeeping or brokerage services and make available investment options to be offered by the plan Persons who receive or may receive indirect compensation for the following services: accounting, auditing, actuarial, appraisal, banking, consulting, custodial, insurance, investment advisory (plan or participants), legal, recordkeeping, brokerage, TPA, or valuation 4

5 ERISA 408(b)(2) Required Disclosures 9 Service providers are required to disclose (before the parties enter into an agreement for services): All services to be provided under the agreement The compensation or fees to be received for each service The manner of receipt of compensation or fees Information about conflicts of interest. Integrates with Form 5500 Schedule C Reporting 10 ERISA 408(b)(2) Disclosures Clarification of the Meaning of Reasonable Arrangement All service agreements be in writing (no prescribed format) Imposes new service provider disclosure obligations before or at the time the plan enters a service agreement 5

6 11 ERISA 408(b)(2) Disclosures Consequences of Non-Compliance Contract or arrangement will not be reasonable and violates 408(b)(2) a prohibited transaction Responsible Plan Fiduciary violates 406(a)(1)(c) by participating in the prohibited transaction Service provider is a disqualified person under IRS PT rules. Subject to excise taxes under IRC Code 4975 Investment Advice 12 Final rule published in the Federal Register October 25, 2011 Designed to improve participant access to fiduciary investment advice Permits a fiduciary investment adviser who receives additional fees from investment providers if certain conditions are met Use of a computer model that is certified as unbiased by an independent expert or Through an adviser compensated on a level-fee basis, meaning that the fees do not vary based on investments selected May be viewed at 6

7 Interim E-Disclosure Policy 13 Technical Releases and R Expand the ability of plans to use electronic disclosure requirements under DOL s final participant-level fee disclosure regulation Allow plan administrators to furnish information electronically while ensuring that all employees will benefit from the reg s increased transparency Includes the use of continuous access websites if certain conditions and safeguards are met DOL will not take enforcement action solely based on a plan administrator s use of electronic technologies Guidance is available at: 14 Definition of Fiduciary Project DOL intends to re-issue proposed rule The purpose of the reg. is to ensure that potential conflicts of interest among advisors do not compromise the quality of investment advice The proposed reg. would more broadly define fiduciary when a person provides investment advice 7

8 Guidance for Apprenticeship & Training Programs FAB Issued 4/2/12 Provides guidance regarding plans paying graduation ceremony and advertising expenses Certain modest graduation ceremony and outreach expenses are permissible Violations more prevalent where plans lack written expense policies & internal controls OLMS has published a list of useful internal controls 15 Audit Quality Update 16 8

9 17 Audit Quality History 1989 DOL Office of Inspector General Report Concludes employee benefit plan audit quality is poor 23% of plan audits fail to meet professional standards 1997 EBSA Assessment of Audit Quality No statistically valid change in audit quality 19% of plan audit failed to meet professional standards 2004 EBSA s 2 nd Assessment of Audit Quality Audit quality is getting worse and spreading to largest CPA firms 2005 AICPA creates the Employee Benefit Plans Audit Quality Center 18 Plan Auditor Universe 79,000 Plan Audits 9,350 CPA firms performing audits $4.7 trillion in plan assets subject to audit 9

10 19 More than 100 EBP Audits 80 CPA firms (less than 1% of firms) 29,400 audits (38% of audits) $3.5 trillion in plan assets audited (75% of assets audited) 20 Less than 100 EBP Audits 9,200 CPA firms 49,000 plan audits $1.125 trillion in plan assets audited 10

11 21 OCA s Audit Quality Inspection Efforts Firm Inspections Mini Inspections Small Practice Inspections 22 Where Have We Been? Firm Inspections of all firms with > 200 EBP audits Mini Inspections of all firms with EBP audits Inspection of over 2,500 sets of workpapers performed by other firms Results largely satisfactory in firm and mini inspections 11

12 23 What is our Current Focus? High Risk Audit Engagements Multi-employer Plans Defined Benefit Pension Plans Defined Contribution Pension Plans Single Employer Defined Benefit Pension Plans Health and Welfare Plans ESOPs 403(b) Plans 24 ESOPs Over 50% of audits contained deficiencies Common audit deficiencies include: Failure to identify valuation of employer stock in the risk assessment Review of the work of the appraiser (full scope audits) Testing the release of shares from the suspense account Testing benefit payments Obtaining and reviewing documentation of stock purchases Party-In-Interest = inadequate or no audit work performed 12

13 25 403(b) Plan Audits Review of 84 sets of (b) plan audit workpapers Firms of all sizes Opinions varied and included Clean limited-scope FAB language Recordkeeping language Work on opening balances varied greatly What will OCA deem rejectable? EBP Audit Best Practices 26 Commitment to Quality Executive Level Firm-wide Importance of EBP Audit Practice Focal point within firm Realistic audit fees Comprehensive EBP specific resources Internal Inspection Programs Use of Internal Experts 13

14 27 Reporting Compliance Initiatives Electronic Communication w/filers Schedule C Compliance Reporting of Funded Welfare Plans Missing IQPA Reports Collaboration w/irs & PBGC 27 And Now it s Your Turn 28 14