Art of the Qualified Plan Audit

In Summary The 403(b) Audit Disclaimer’s Origin: The requirement for ERISA-covered 403(b) plans to have audited financial statements began in 2009, but due to a historical lack of employer involvement with older contracts, plan sponsors often could not locate all plan assets. This impossibility led to auditors issuing disclaimed opinions on the financial statements’ completeness. … Continued

In Summary The Honor System in Small Retirement Plans: Due to changes in participant counting rules, many small plans are exempt from mandatory annual financial statement audits, relying instead on a “trust, but verify” honor system. This places a significant responsibility on plan sponsors for oversight. Verification Through Self-Audits or Agreed-Upon Procedures: Plan sponsors are … Continued

In Summary ERISA vs. FASB ERISA: Section 3(14) defines a “party-in-interest” more broadly than FASB ASC 850’s definition of “related parties,” encompassing various individuals and entities connected to an employee benefit plan, including fiduciaries, service providers, employers, and certain owners or relatives. Reporting and Disclosure Requirements for Transactions: Transactions with parties-in-interest (excluding statutory exemptions like … Continued

Don’t Stand, Don’t Stand So, Don’t Stand So Close to Me Unlike unwritten rules referring to the social norms, customs, and expectations that guide behavior in various contexts, such as maximizing personal space in an elevator, or bringing a small gift when invited to someone’s house, SECURE 2.0 brings rules that must be followed effective … Continued

In Summary Change in Participant Counting Method: Defined contribution plans filing the 2023 Form 5500 must now use the number of participants with account balances at the beginning of the plan year to determine their filing status (small-plan, under 100, or large-plan, 100 or more), a shift from the prior rule that counted all eligible … Continued

In Summary Plan Qualification and Tax Treatment: Retirement plans established in Puerto Rico (PR) receive favorable U.S. tax treatment under ERISA Section 1022(i). Plans covering only PR residents (1022(i)(1)) are exempt from U.S. taxation on trust income, while plans electing full U.S. compliance (1022(i)(2)) can cover both U.S. and PR employees. Key Regulatory Differences Must Be … Continued

On January 31, 2024, Hacienda, (the Puerto Rico Department of the Treasury) issued Internal Revenue Circular Letter No. 24-01 (CL IR 24-01) announcing the 2024 limits for Puerto Rico-qualified retirement plans according to Section 1081.01(h) of the Puerto Rico Internal Revenue Code of 2011, as amended. Following are the applicable 2024 limits for qualified defined … Continued

The Office of the Chief Accountant (OCA) in the Employee Benefit Security Administration (EBSA) of the Department of Labor (DOL) has released a 2023 Audit Quality Study covering the quality of audits being performed by independent qualified public accountants (IQPAs).  This is the fourth study to be performed with prior studies being performed in 2015, … Continued

In Summary Correction Options for Retirement Plan Errors: The various methods available for calculating corrective contributions and their associated earnings, aiming to make participants whole, range from using actual individual investment returns (Option 1) to employing reasonable estimates like the plan’s weighted average rate of return (Option 3). When to Use Simple Estimates and the … Continued

In Summary ADP/ACP Testing Limits HCEs: Discrimination tests like ADP and ACP limit how much Highly Compensated Employees (HCEs) can defer to a plan. HCE deferral limits are directly tied to the average contribution percentage of Non-Highly Compensated Employees (NHCEs). Zero Contributions Impact Averages: All eligible employees, even those who contribute zero, must be included … Continued