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403b PLAN UPDATEIs Your Plan in Compliance?
March 23, 2010
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
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
• Must be written• Stand-alone or collection• Must include material provisions▫ Eligibility▫ Benefits▫ Investment options
Plan document
• No more good faith• Universal availability
Nondiscrimination rules
Closes the gap between403b and 401k regulations
• Timely employee deferral remittances• Form 5500 filing requirement if subject to
ERISA• Plan administration• Fiduciary responsibilities
Who are the plan’s fiduciaries?
• Discretion• Control• Examples▫ Administration▫ Trustee▫ Investment consultant or manager
▫ Attorneys for the plan▫ Accountants for the
plan▫ Actuaries for the plan
Who is not a fiduciary?
What are the fiduciaries’ responsibilities?
• Act solely in the interest of participants• Act prudently• Follow plan documents• Diversify investments• Pay reasonable expenses
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
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
Form 5500 filing requirements
• ERISA plans• Small plan v. large plan• 80/120 rule• Schedule H• eFiling required
Determining Plan Assets…
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
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
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
So you have to have an audit…
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
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
What is fair value?
• GAAP requirement• Old definition of fair value• New definition of fair value
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
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
Internal controls
• Process for determining fair value• Select appropriate valuation method• Identify and support assumptions
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
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
Types of audits
• Limited scope• Full scope
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
Common audit pitfalls to avoid
• Employee contributions not remitted timely –no safe-harbor for large plans
• Incomplete employee files
Questions?