403b Plan Updates

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Text of 403b Plan Updates

  • 1. 403b PLAN UPDATEIs Your Plan in Compliance?March 23, 2010
  • 2. Presenters: Cynthia L. Keith, CFA Executive Director-Investments and Senior Portfolio Manager Oppenheimer & Co. Inc. Erin Hultman, CPA, MST Senior Manager-Audit and Assurance Services Tate & Tryon, CPAs and Consultants
  • 3. Final Regulations Effective for plan years beginning on or after January 1, 2009 Written plan document Nondiscrimination rules Closes the gap between 403b and 401k plans Form 5500 filing requirements
  • 4. Plan document Must be written Stand-alone or collection Must include material provisions Eligibility Benefits Investment options
  • 5. Nondiscrimination rules No more good faith Universal availability
  • 6. Closes the gap between403b and 401k regulations Timely employee deferral remittances Form 5500 filing requirement if subject to ERISA Plan administration Fiduciary responsibilities
  • 7. Who are the plans fiduciaries? Discretion Control Examples Administration Trustee Investment consultant or manager
  • 8. Who is not a fiduciary? Attorneys for the plan Accountants for the plan Actuaries for the plan
  • 9. What are the fiduciariesresponsibilities? Act solely in the interest of participants Act prudently Follow plan documents Diversify investments Pay reasonable expenses
  • 10. What is the liability for fiduciaries? Personal liability Ways to limit that liability 1. Document processes 2. Full reporting 3. Provide participants with control over investment options 4. Provide default investment options 5. Liability indemnification or fidelity bond
  • 11. Form 5500 filing requirements ERISA v. Non-ERISA new regulations did not impact directly Non-ERISA plans Church & governmental plans Employee deferral ONLY plans Increased scrutiny by DOL of sponsoring organization
  • 12. Form 5500 filing requirements ERISA plans Small plan v. large plan 80/120 rule Schedule H eFiling required
  • 13. Determining Plan Assets
  • 14. Transition guidance Revenue Procedure 2007-71 Contracts issued prior to 1/1/2005 Contracts issued 1/1/2005 1/1/2009 reasonable good faith effort Contracts issued after 1/1/2009 include in plan assets
  • 15. Transition Relief:DOL Field Assistance Bulletin 2009-02 Contract issued before 1/1/2009 No obligation to make contributions since 1/1/2009 Rights under contract enforceable against insurer, no employer involvement Owner of contract is fully vested
  • 16. What qualifies as employerinvolvement? EBSA Field Assistance Bulletin No. 2010-01 Involvement can include keeping plan compliant Employer can confirm employee information Employer cannot approve transactions
  • 17. So you have to have an audit
  • 18. Preparing for the audit Obtain TPA reports, 2009 and 2008, by investment and by participant Document internal controls Determine participant count and plan asset totals Properly value plan assets
  • 19. Accurate investment valuation is afiduciary duty Why is accurate valuation important? Responsibility to maintain records and report on form 5500 Plan Distributions need to be correct
  • 20. What is fair value? GAAP requirement Old definition of fair value New definition of fair value
  • 21. How should investments be valued? Level 1 quoted prices in active markets for identical assets 1. For identical assets only 2. Accessed at the measurement date 3. Must be used if available Level 2 observable inputs 1. Not exchange prices but directly or indirectly observable 2. What market participants are using Level 3 unobservable inputs 1. The plans assumptions about market price 2. Based on information available 3. May rely on investment manager
  • 22. Ensuring appropriate investmentvaluations Why is this important to you as a fiduciary? Custodian etc may provide prices Fiduciary remains responsible Fiduciary required to evaluate pricing
  • 23. Internal controls Process for determining fair value Select appropriate valuation method Identify and support assumptions
  • 24. Practical steps Obtain SAS #70 report 1. Type 1 report 2. Type 2 report Caveats 1. Without SAS #70 2. Mutual funds and marketable securities 3. SAS #70 does not cover alternative investments
  • 25. Valuation short cuts that may not work Custodial reports 1. Valuation date not equal to plan year end 2. Pass through pricing Certification from custodian or trustee 1. ERISA allows this in certain cases 2. Should state prices are fair value Hiring an appraiser 1. Relieves some responsibility for fair value pricing 2. Fiduciary still responsible for review
  • 26. Types of audits Limited scope Full scope
  • 27. Audit opinions Unqualified full scope only Qualified possible as a result of missing plan information Disclaimer due to limited scope audit Disclaimer due to other limitations Adverse What opinions will DOL accept on Schedule H? Good faith effort
  • 28. Common audit pitfalls to avoid Employee contributions not remitted timely no safe-harbor for large plans Incomplete employee files
  • 29. Questions?