Presented by Travis P. Jack, CPA Metz & Associates, PLLC

Presented by Travis P. Jack, CPA Metz & Associates, PLLC

» Qualified Plan Definition Technical definition: A Plan that satisfies the requirements of Internal Revenue Code Section 401(a) + Must satisfy requirements in both form and in operation + Nondiscrimination Requirements, Coverage Requirements, Top-Heavy Requirements, Exclusive Benefit Requirement See Additional Detail At: http://www.irs.gov/retirement-plans/a-guide-to-common- Qualified-Plan-Requirements

» Plan Qualification Basics and Requirements Qualified retirement plans are afforded tax deductible contributions, deferral of taxation to the employee, and tax deferred investment earnings on plan assets In order to obtain the special treatment afforded qualified plans, certain regulatory requirements set forth by the Internal Revenue Code and Treasury regulations must be met The body of law governing Qualified Plans is the Employee Retirement Income Securities Act of 1974 as amended (ERISA)

» Employee Retirement Income Securities Act of 1974 as amended (ERISA) ERISA split Jurisdiction over retirement plan matters between two administrative agencies + The Department of Labor (and it s administrative agency Employee Benefit Security Administration (EBSA)) + The Department of Treasury (and its administrative agency the Internal Revenue Service) ERISA 1974 2014 Total Assets of Private Pension Plans $164 billion Over $6 trillion http://www.dol.gov/ebsa/pdf/historicaltables.pdf ERISA has grown from approximately 200 pages of legislation in 1974 to nearly 20 times the size of the original regulation through a series of amendments over time, not including countless pages of commentary and cases

» Components of ERISA TITLE I - + Enforced by the Department of Labor + Labor law Provisions of ERISA + Minimum statutory standards for eligibility and vesting + Reporting and Disclosure rules + FIDUCIARY STANDARDS TITLE II + Enforced by the Internal Revenue Service + Tax-Related Provisions of ERISA + Parallel some aspects of Title I + Coverage and Discrimination Testing

» Components of ERISA (Continued) Title III + Primarily contains the administrative provisions of ERISA that divide the oversight responsibilities and enforcement between the Internal Revenue Service and the Department of Labor Title IV + Establishes the Pension Benefit Guaranty Corporation (PBGC), which provides an insurance program for defined benefit plans The PBGC will pay guaranteed benefits to participants on behalf of a defined benefit plan that terminates without sufficient assets to fulfill all benefit liabilities + Also contains provisions for Plan Sponsor procedures that must be followed when terminating a plan

» Plan Types Defined Benefit Pension Plan Profit Sharing Plan Money Purchase Pension Plan Stock Bonus Plan Employee stock ownership Plan (ESOP) Target Benefit Pension Plan Simplified Employee Pension (SEP) Simple IRA Plan Simple 401(k) Plan For additional comparison see details at the Department of Labor s Guide for Choosing a Retirement Solution: http://www.dol.gov/ebsa/pdf/choosing.pdf

» Current Limitations 2014 2013 2012 IRAs IRA Contribution Limit $5,500 $5,500 $5,000 IRA Catch-Up Contributions 1,000 1,000 1,000 SEP SEP Minimum Compensation 550 550 550 SEP Maximum Contribution 52,000 51,000 50,000 SEP Maximum Compensation 260,000 255,000 250,000 SIMPLE Plans SIMPLE Maximum Contributions 12,000 12,000 11,500 Catch-up Contributions 2,500 2,500 2,500 401(k), 403(b), Profit-Sharing Plans, etc. Annual Compensation 260,000 255,000 250,000 Elective Deferrals 17,500 17,500 17,000 Catch-up Contributions 5,500 5,500 5,500 Defined Contribution Limits 52,000 51,000 50,000 ESOP Limits 1,050,000 1,035,000 1,015,000 210,000 205,000 200,000 Defined Benefit Limits Defined Benefit Limits 210,000 205,000 200,000

» Annual Reporting Requirements Plans Subject to Title I of ERISA Requirements + Form 5500 (annual return) Schedule A (Insurance Information) Schedule C (Service Provider Information) Schedule SB or MB (Actuarial Information for a DB Plan) Schedule G (Financial Schedules Reporting for loans and leases in default and prohibited transactions) Schedule H (Financial Information)» Auditor Data, Plan Financials, Bonding Coverage Information, Supplementary Schedules, (Line Hi) Schedule of Assets Held, (Line Hj) Schedule of Reportable Transactions For additional information on Form 5500 (2013 Instructions 82pgs): http://www.dol.gov/ebsa/pdf/2013-5500inst.pdf

» Annual Reporting Requirements (Continued) Audit Requirement + General Requirement + 80-120 Rule + Audit Waiver For Small Plans Investment/bonding requirement. At least 95% of the plan s assets must be invested in qualifying plan assets or, if the 95% requirement is not satisfied, the assets that are non-qualifying plan assets must be covered by a bond that satisfies the requirements of ERISA 412 and which is not less than the value of such assets (without regard to the bonding limits under the normal ERISA bonding rules) Due Dates for Form 5500 + Seven Months from the date of the end of the plan year + Can be extended 2 ½ Months with Form 5558

» Annual Reporting Requirements (Continued) ERISA Filing Acceptance System (EFAST2)

» Annual Reporting Requirements (Continued) Plans Subject to Title I of ERISA Requirements + Form 5500-SF Can be filed for plans that meet certain requirements:» The plan covers fewer than 100 participants as of the first day of the plan year (exception 80-120 Rule)» The plan is eligible for the Small Plan Audit Waiver > Enhanced Disclosure and Bonding Requirements related to qualified assets + Form 5500-EZ One participant plans Filed with the IRS not DOL s Efast2 system For additional information on Form 5500 (2013 Instructions 82pgs): http://www.dol.gov/ebsa/pdf/2013-5500inst.pdf

» Common Compliance Problems Delinquent Contributions Late Filings (including filing without an audit report for a large plan) Definition of compensation issues Late Filing Fees: + The IRS penalties for late filing are $25 per day up to a maximum of $15,000 + The DOL penalties can run up to $1,100 per day (no maximum) For additional information on compliance items: http://www.irs.gov/pub/irs-tege/401k_mistakes.pdf http://www.irs.gov/pub/irs-tege/403(b)_fixit_guide.pdf

» Corrective Programs Department of Labor + Delinquent Filer Voluntary Compliance Programs (DFVCP) + Voluntary Fiduciary Correction Programs (VFCP) Internal Revenue Service + Self-Correction Program (SCP) + Voluntary Correction with IRS Approval Program (VCP) + Audit Closing Agreement Program (Audit CAP) DFVCP http://www.dol.gov/ebsa/newsroom/0302fact_sheet.html VFCP http://www.dol.gov/ebsa/newsroom/fs2006vfcp.html

» Fiduciary Responsibilities Excerpts from EBSA Publication Meeting Your Fiduciary Responsibilities Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. These responsibilities include: Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them; Carrying out their duties prudently; Following the plan documents (unless inconsistent with ERISA); Diversifying plan investments; and Paying only reasonable plan expenses. With these fiduciary responsibilities, there is also potential liability. Fiduciaries who do not follow the basic standards of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of the plan s assets resulting from their actions.

» Fiduciary Responsibilities Excerpts from EBSA Publication Meeting Your Fiduciary Responsibilities A fiduciary should be aware of others who serve as fiduciaries to the same plan, because all fiduciaries have potential liability for the actions of their co-fiduciaries. For example, if a fiduciary knowingly participates in another fiduciary s breach of responsibility, conceals the breach, or does not act to correct it, that fiduciary is liable as well. The duty to act prudently is one of a fiduciary s central responsibilities under ERISA. It requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out the investment and other functions. Prudence focuses on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for those decisions. For instance, in hiring any plan service provider, a fiduciary may want to survey a number of potential providers, asking for the same information and providing the same requirements. By doing so, a fiduciary can document the process and make a meaningful comparison and selection. See Full Publication at: http://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html

» Fiduciary Roles Fiduciary Status is based on the functions performed for the plan A plan must have at least one Named Fiduciary in the written plan document + The Named Fiduciary under ERISA section 402 + May be identified by office or name, for some plans it may be an administrative committee or company s board of directors The ERISA 3(21) Discretionary Fiduciary for Management of the Plan and or assets + Any person that engages in any discretionary authority or control over key aspects of the plan is considered a Fiduciary Regardless of whether there is an agreement, or whether the person intends to engage in this conduct or not

» Fiduciary Roles (Continued) The 3(16) Plan Administrator (Both Fiduciary and Non-Fiduciary tasks) + Many of the tasks fall under the Plan Administrator but may be delegated to Third Party Service Providers who may or may not also be Fiduciaries depending on the requisite service provider contracts. Non-fiduciary tasks (ministerial duties): Calculating Benefits, Preparing Employee Communications, Preparing drafts of government filings, Maintaining Records, Collecting and/or applying contributions, Processing approved loans, making recommendations. Fiduciary tasks (Tasks involving the exercise of discretionary management and control over administration) The authorization of distributions or loans, or any plan transactions; Investment services for a fee provided by an administrative company; Investment monitoring services for a fee (see discussion below);any selection or monitoring of investments; The selection of certain plan service providers; and Actions to enforce or interpret the terms of the plan. It is important when retaining an independent ERISA 3(16) Administrator, the plan fiduciary must determine the exact scope of services and exact responsibilities being taken on by that Administrator. Some duties will be fiduciary in nature and others are not. If the plan terms or an agreement do not delegate certain responsibilities, they are then retained by plan officials.

» Fiduciary Roles (Continued) + The 3(38) Investment Manager Fiduciary An ERISA Section 3(38) Investment Manager is a well-defined role. The Investment Manager is authorized and acknowledges in writing, that someone other than the Named Fiduciary or Trustee, has responsibility regarding the power with discretion to manage, acquire, or dispose of any asset of a plan. This can be any person who maintains the requisite license to provide such services, including a Registered Investment Advisory ("RIA") business entity. + The 3(21) Non-Discretionary Fiduciary, Investment Advisors Consists of rendering investment advice for a fee, (whether the fee is direct or indirect), creates a specific investment advisor fiduciary role unlike the other fiduciary roles the role does not involve the exercise of discretion and is not defined to include the exercise of discretion. Rather it is any investment advice given to a plan and possibly individual participants and beneficiaries that creates this fiduciary role. Notably, the mere investment advice fiduciary has a very limited fiduciary role and responsibility to the plan. Without discretion, the investment advice fiduciary is specific and results in more limited responsibility. For additional information on Form 5500 (2013 Instructions 82pgs): http://www.dol.gov/ebsa/pdf/2013-5500inst.pdf

» Fiduciary Responsibilities (Continued) + The Co-Fiduciary The plan and Named Fiduciary can, by the plan document or by agreement, assign Co-Fiduciary responsibility to certain persons or entities with respect to certain aspects of a plan. Assets can be jointly managed. Various fiduciary roles can be allocated and jointly assumed by one lead fiduciary service provider as the "go-to" provider, or to a series of more than one fiduciary in a Co-Fiduciary relationship. Some service providers take on the entire fiduciary responsibility. Others share the responsibility through the Co-Fiduciary role. Smith V. Stockwell Construction Co. Excellent article in ASPPA s Pension Consultant Publication Starting on Page 38 Co-Fiduciary Liability Under ERISA http://www.asppa.net/document-vault/pdfs/pc-mag-winter- 14.aspx

» 408(B)2 and related disclosures The final rule requires covered service providers (CSPs) to provide responsible fiduciaries with information they need to: + Assess reasonableness of total compensation, both direct and indirect, received by the CSP, its affiliates, and/or subcontractors; + Identify potential conflicts of interest; and + Satisfy reporting and disclosure requirements under Title I of ERISA. For covered service providers who expect at least $1,000 in compensation to be received for services to a covered plan. Regulation intended to increase transparency and consistency when comparing service providers. Revenue sharing and indirect compensation has made comparison of service providers challenging For additional information on 408(b)2: http://www.dol.gov/ebsa/newsroom/fs408b2finalreg.html

» 408(B)2 Responsibilities Responsibilities of the Service Provider + Report the services being provided + Fiduciary status + Conflict of interest + Cost of service Plan Fiduciaries responsibilities include: + Ensure they receive proper 408(b)(2) disclosures + Evaluate if services are necessary, arrangement is reasonable and costs are not out of line + Make any changes indicated by the evaluation + Report service providers who fail to comply to DOL + http://www.dol.gov/ebsa/regs/feedisclosurefailurenotice.html

» 408(B)2 Responsibilities (Continued) Under the new regulations evaluating the quality of vendor services is important in relation to plan fees, simply benchmarking on fees alone will not meet the reasonableness test Must establish and Document prudent process for full compliance. + Failure to comply with 408(b)2 creates a prohibited transaction and possible fiduciary breach

» Importance of selecting plan service providers Investment Advisers + Acting in a fiduciary capacity + Compensation fee structure + Registered investment Adviser SEC, FINRA + Credentials AIFA Accredited Investment Fiduciary Analyst CFEX Certification Centre for Fiduciary Excellence CFP Certified Financial Planner See the Department of Labor s Guide at: http://www.dol.gov/ebsa/newsroom/fs053105.html

» Importance of selecting plan service providers Plan Auditors + Although plan Auditors do not service the plan in a fiduciary capacity, they play an important role in the processing of large plan annual filings + If a plan filing and associated audit is selected for review and the Department of Labor deems the audit to be Substandard, both the form 5500 and audit are removed from efast2, The Plan Sponsor is then responsible to have that year reaudited and late fees and penalties from the original filing date The DOL has the right to assess penalties up to $1,100 per day without limit

» Importance of selecting plan service providers Plan Auditors (population statistics) * + 82,579 Plan Audits + 7,358 CPA firms performing plan audits + 6.3 trillion in Plan assets subject to audit Uneven distribution of plan audits by CPA firm + 50% of audit firms audit only 1 or 2 plans annually + 1% of audit firms audit 100+ plans annually *Statistics gathered from the AICPA s Employee Benefit Audit Quality Center

» Results of Previous Audit Quality Studies by the Department of Labor The Department of Labor estimates audit deficiency rates at an unacceptably high at 32% 2004 and 1997 quality studies had similar deficiency rates + 2004 30% of plan audits did not comply with professional standards + http://www.dol.gov/ebsa/publications/2010acreport2.html Large variation in quality depending on the practice size and experience with Employee Benefit Plans + Firms with large EBP practices tend to meet professional standards + Firms with limited EBP practices have a higher rate of deficient professional work Phillys Borzi, Assistant Secretary of Labor, Ian Dingwall the DOL s Chief Accountant and Marcus Aaron, Senior auditor of EBSA s Division of Accounting have all publicly commented on the lack of audit quality by some service providers in the market

» Current Audit Quality Study of firms DOL performing a Statistical based Nationwide Study to provide a baseline of audit quality Sampling 400 plan audits Being conduced in 2014 Workpaper request letter is being sent to plan administrators Reviews are being performed remote in EBSA s office http://www.dol.gov/ebsa/publications/selectinganauditor.html http://www.aicpa.org/interestareas/employeebenefitplanauditqualit y/pages/ebpaqhomepage.aspx

» What are some good things to look for to determine if an auditor is qualified? Number of plan audits performed annually Number of years the firm has been established Look up proper CPA licensing and any necessary state practice privileges AICPA Employee Benefit Plan Audit Quality Center Membership ASPPA American Society of Pension Professionals & Actuaries Membership Knowledge at both the engagement partner level and staff level can be very important» See Publications and detail related to selecting an auditor at: http://www.dol.gov/ebsa/publications/selectinganauditor.html http://www.aicpa.org/interestareas/employeebenefitplanauditquality/pages/ EBPAQhomepage.aspx

» Importance of due diligence in selecting plan service providers Arizona Based Case Study Unlicensed Audit Firm Performing 14+ Retirement Plan Audits, over a period of more than 10 years + Matter Pending Department of Labor Criminal Investigation http://www.dol.gov/ebsa/publications/selectinganauditor.html http://www.aicpa.org/interestareas/employeebenefitplanauditquality/pa ges/ebpaqhomepage.aspx

Travis P. Jack, CPA Email: tjack@metzcpa.com Direct Line: 480-878-7346 If you have any questions that we did not get a chance to cover please feel free to contact me.