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Page 1: 403b Plan Updates

403b PLAN UPDATEIs Your Plan in Compliance?

March 23, 2010

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Presenters:

Cynthia L. Keith, CFAExecutive Director-Investments and Senior Portfolio ManagerOppenheimer & Co. Inc.

Erin Hultman, CPA, MSTSenior Manager-Audit and Assurance ServicesTate & Tryon, CPAs and Consultants

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Final Regulations

• Effective for plan years beginningon or after January 1, 2009

• Written plan document• Nondiscrimination rules• Closes the gap between 403b and 401k plans• Form 5500 filing requirements

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• Must be written• Stand-alone or collection• Must include material provisions▫ Eligibility▫ Benefits▫ Investment options

Plan document

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• No more good faith• Universal availability

Nondiscrimination rules

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Closes the gap between403b and 401k regulations

• Timely employee deferral remittances• Form 5500 filing requirement if subject to

ERISA• Plan administration• Fiduciary responsibilities

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Who are the plan’s fiduciaries?

• Discretion• Control• Examples▫ Administration▫ Trustee▫ Investment consultant or manager

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▫ Attorneys for the plan▫ Accountants for the

plan▫ Actuaries for the plan

Who is not a fiduciary?

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What are the fiduciaries’ responsibilities?

• Act solely in the interest of participants• Act prudently• Follow plan documents• Diversify investments• Pay reasonable expenses

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What is the liability for fiduciaries?

• Personal liability

• Ways to limit that liability1. Document processes2. Full reporting3. Provide participants with control over

investment options4. Provide default investment options5. Liability indemnification or fidelity bond

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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

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Form 5500 filing requirements

• ERISA plans• Small plan v. large plan• 80/120 rule• Schedule H• eFiling required

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Determining Plan Assets…

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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

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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

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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

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So you have to have an audit…

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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

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Accurate investment valuation is a fiduciary duty

Why is accurate valuation important?

• Responsibility to maintain records and report on form 5500

• Plan Distributions need to be correct

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What is fair value?

• GAAP requirement• Old definition of fair value• New definition of fair value

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How should investments be valued?

• Level 1 – quoted prices in active markets for identical assets

1. For identical assets only2. Accessed at the measurement date3. Must be used if available

• Level 2 – observable inputs1. Not exchange prices but directly or indirectly

observable2. What market participants are using

• Level 3 – unobservable inputs1. The plan’s assumptions about market price2. Based on information available3. May rely on investment manager

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Ensuring appropriate investment valuations

Why is this important to you as a fiduciary?

• Custodian etc may provide prices• Fiduciary remains responsible• Fiduciary required to evaluate pricing

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Internal controls

• Process for determining fair value• Select appropriate valuation method• Identify and support assumptions

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Practical steps

• Obtain SAS #70 report1. Type 1 report2. Type 2 report

• Caveats1. Without SAS #702. Mutual funds and marketable securities3. SAS #70 does not cover alternative investments

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Valuation short cuts that may not work

• Custodial reports1. Valuation date not equal to plan year end2. Pass through pricing

• Certification from custodian or trustee1. ERISA allows this in certain cases2. Should state prices are fair value

• Hiring an appraiser1. Relieves some responsibility for fair value pricing2. Fiduciary still responsible for review

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Types of audits

• Limited scope• Full scope

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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

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Common audit pitfalls to avoid

• Employee contributions not remitted timely –no safe-harbor for large plans

• Incomplete employee files

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Questions?


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