employee benefit plan audits - cfo's … benefit plan audits - cfo’s responsibilities ......

EMPLOYEE BENEFIT PLAN AUDITS EMPLOYEE BENEFIT PLAN AUDITS - CFO’S RESPONSIBILITIES

Gary Broder, Bob Hamilton & Hosanna Custodio

What Every CFO Should Expect in the Annual Audit of Their Employee Benefit PlanTheir Employee Benefit Plan

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Generally, audit requirement for plans with > = 100 participants at the beginning of year and funded through a trust.

For new auditor, communication between successor and predecessor auditor.

For new and continuing auditor, expect certain inquiries before acceptance of the engagement.


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The auditor will conduct the audit in accordance The auditor will conduct the audit in accordance with generally accepted auditing standards.

An audit is not designed to provide assurance on internal control or to identify significant deficiencies.internal control or to identify significant deficiencies.


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The objective of the full scope audit is the The objective of the full scope audit is the expression of an opinion on the financial statementsstatements.

I li i d di h di d In a limited scope audit, the auditor does not express an opinion on the financial statement

and supplemental schedules taken as a whole.


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Engagement Letter - Auditor will communicate with those charged with b t th dit ’ ibiliti d l d d governance about the auditor’s responsibilities and planned scope and

timing of the audit.

Request List - Should be provided to management asking for the plan Request List - Should be provided to management asking for the plan document, plan amendments, determination letter, draft financial statements, financial trust and record-keeping reports, fidelity bond, minutes of investment committee meetings, SAS 70 reports for service providers etcproviders, etc.

Trustee Certification - In a limited scope audit, the plan administrator will be requested to provide the auditor with a copy of the trustee’s q p pycertification covering the plan’s investments and transactions. The auditor has no responsibility to test the accuracy or completeness of the investment information certified by the trustee.


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Roles of Human Resources and Payroll Departments

Internal Controls on: Reconciliation of trust assets to total of participant accounts Reconciliation of trust assets to total of participant accounts. Monitoring of investments, benefits paid, employee and

employer contributions, participant accounts, administrative expenses, service providers.p , p

Compliance with non-discrimination tests, plan document, ERISA and DOL regulations.

Risk Assessment: Risks of fraud risks Risks of material misstatement Risks of material misstatement


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Material audit areas subject to testing are: Investment and investment transactions (if full scope audit) Employer contributions Employee contributions (including timely remittance) Employee contributions (including timely remittance) Benefit payments Participant loans Allocations to participant accounts and participant data (e g Allocations to participant accounts and participant data (e.g.,

eligibility, salary, investment options, etc), Parties-in-interest and prohibited transactions

Sampling process and request for documentation


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Representation letter - representations from Representation letter representations from management for all financial statements and periods covered by the auditor's report regarding: Financial StatementsCompleteness of InformationRecognition, Measurement, and DisclosureSubsequent Eventsq


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The auditor will request that the representation The auditor will request that the representation letter be signed by those members of management with overall responsibility for financial and p yoperating matters. For example, the named fiduciary and the CFO.


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Independent auditors’ report - will be attached to Plan’s financial d DOL i d l l h d lstatements and DOL required supplemental schedules.

For full scope audits, the opinion on the financial statements may be: unqualified, unqualified with an explanatory paragraph, qualified for a departure from GAAP, qualified due to a scope limitation, disclaimer, or Adversedve se

Review of Form 5500 before filing with the DOL


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Most common DOL required supplemental schedules q ppfor a 401(k) plan:Schedule H, line 4i – Schedule of Assets (Held at

End of Year)End of Year)

Schedule H, line 4j – Schedule of Reportable , j pTransactions (in the case of non-participant directed transactions)

Schedule H, line 4a, Schedule of Delinquent Participant Contributionsp


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SAS No. 114 The Auditor’s Communication With SAS No. 114 The Auditor s Communication With Those Charged With Governance

SAS No. 115 Communicating Internal Control Related Matters Identified in an AuditRelated Matters Identified in an Audit

Fiduciary Responsibilitiesy p13

202.2 ERISA, Title I, Section 3(21), defines a fiduciary , , ( ), yas a person who: Exercises discretionary authority or control over the

management of an employee benefit plan or the disposition management of an employee benefit plan or the disposition of its assets,

Gives investment advice about plan funds or property for a f h h h dfee or compensation or has the authority to do so,

Has discretionary authority or responsibility in plan administration, or

Is designated by a named fiduciary to carry out fiduciary responsibility.


The key to determining whether an individual or an entity is a y g yfiduciary is whether they are exercising discretion or control over the plan.A l ’ fid i i ill di il i l d A plan’s fiduciaries will ordinarily include: Trustee, Investment advisers and managers Investment advisers and managers, All members of a plan’s administrative committee (if any) All individuals exercising discretion in the administration of g

the plan. Attorneys, accountants, and actuaries generally are not

fiduciaries.


Fiduciary responsibilities: Fiduciary responsibilities:Acting solely in the interest of plan participants

and their beneficiaries and with the exclusive and their beneficiaries and with the exclusive purpose of providing benefits to them

Carrying out their duties prudentlyCa y g ou e du es p ude yFollowing the plan documentsDiversifying plan investmentsDiversifying plan investmentsPaying only reasonable plan expenses


Prudence focuses on the process for making fiduciary Prudence focuses on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for those decisions.

Plan document serves as the foundation for plan operations. Employers will want to be familiar with their plan document and periodically review the document to make sure it remains current.

Diversification helps to minimize the risk of large investment losses to the plan.


Fiduciaries who do not follow the basic standards of conduct may be personally liable.

Fidelity Bond

Documentation of decision making and monitoring processes Hiring of service providers Plan expenses (must be reasonable) Plan expenses (must be reasonable) Investment selection


On October 22, 2010, the DOL issued a proposed rule that more broadly defines the circumstances under which a person is considered to be a ‘‘fiduciary’’ by reason of giving investment advice to an employee benefit plan.

Fi h l ifi ll i l d h i i f First, the proposal specifically includes the provision of appraisals and fairness opinions.

Second, the proposal makes specific reference to advice d d ti t th t f iti and recommendations as to the management of securities or

other property. Finally, the proposal makes clear that fiduciary status may

res lt from the pro ision of ad ice or recommendations not result from the provision of advice or recommendations not only to a plan fiduciary, but also to a plan participant or beneficiary.


Certain transactions between Plan and a Party-in-Interest are yprohibited under ERISA: A sale, exchange, or lease of property A loan or other extension of credit The furnishing of goods, services and facilities A t f f l t f th f t i i t t A transfer of plan assets for the use of party in interest An acquisition of employer securities or real property in

violation of the 10 percent limitation (defined benefit p (pension plans only).


Fiduciaries are prohibited from engaging in self- Fiduciaries are prohibited from engaging in selfdealing and must avoid conflicts of interest that could harm the plan.

Exemptions are provided in the law for many p p ydealings with banks, insurance companies, and other financial institutions that are essential to the ongoing operations of the plan (compensation is reasonable).


The following documents must be given to participants The following documents must be given to participants and beneficiaries: Summary Plan Description (SPD) y p ( ) Summary of Material Modification (SMM) Individual benefit statementsd v dua be e s a e e s


Initial automatic enrollment notice Initial automatic enrollment notice Summary Annual Report (SAR) or Annual

Funding Notice (AFN) for defined benefit Funding Notice (AFN) for defined benefit plans

Blackout period noticep


EBSA published in the Federal Register, on October 20, 2010, a final rule i i d ti t l ti i t d b fi i i concerning required notices to plan participants and beneficiaries

regarding:

Annually:Annually: Performance information for plan investment options (how well the

investments have performed in the past). The fees and expenses related to each investment option. Information about annuity options. Explanation of fees for plan level and participant level services (e.g.,

plan loan) charged to participant accounts.

Quarterly: Actual dollar amount for fees and expenses charged from the

participant’s account with description of relevant serviceparticipant s account, with description of relevant service.

Investment Oversightg24

Diversification of plan investments Diversification of plan investments

Participant’s control over the investments – limits a Participant s control over the investments – limits a fiduciary’s liability for investment decisions made by the participantp p


Plans that automatically enroll employees can be set Plans that automatically enroll employees can be set up to limit a fiduciary’s liability provided: There are four types of qualified default yp q

investmentsParticipants must be given initial and annual noticesParticipants must be given the opportunity to direct

their investments to a broad range of other options


Fiduciaries retain the responsibility for selecting and Fiduciaries retain the responsibility for selecting and monitoring the investment alternatives that are made available under the plan.

Hiring and monitoring of investment manager and g g gadviser.


Plans that invest in employer stock need to consider specific rules relating to this investment (e.g., 10% limit ).

Proper monitoring will include ensuring that participants Proper monitoring will include ensuring that participants have critical information about the company’s financial condition so that they can make informed decisions about the stock Participants in individual account plans must be the stock. Participants in individual account plans must be provided an opportunity to divest their investment in publicly traded employer securities and reinvest those amounts in other diversified investment options under the amounts in other diversified investment options under the plan.


Relevant internal controls: Periodic review of the plan’s financial statements or trust reports

and investigates significant variances from budgets and expected resultsresults.

The responsibilities for initiating, evaluating, and approving investment transactions are separate from custodial and recordkeeping functions.

The administrative or investment committee or board of trustees reviews investment transactions, balances, and reports from , , ptrustees for adherence to: Investment policies and objectives of the plan instrument or

administrative or investment committeeadministrative or investment committee. ERISA investment limitations and diversification requirements.


Relevant internal controls: Procedures for identifying investment transactions that require disclosure,

for example, party-in-interest transactions and reportable transactions.

P i di i f h i i i d fi i l bili f Periodic review of the reputation, integrity, and financial capability of financial institutions or other custodians holding investment.

Review of SSAE No 16 (formerly SAS 70) reports of custodians record- Review of SSAE No. 16 (formerly SAS 70) reports of custodians, record-keepers, investment managers and relevant third-party service providers


Relevant internal controls: The plan maintains authorized lists of signatures. Investment committee approves contracts with investment mangers,

custodians, and investment advisers.I i h Pl ’ i li i d Investment committee approves the Plan’s investment policies and objectives, and those are documented.

The investment committee meets periodically and minutes of meetings are kept.p

If investment valuations include “good faith” valuations of securities that do not have a market price, the following are appropriately documented: The basis for the al ations either in appraisal reports or min tes of the The basis for the valuations either in appraisal reports or minutes of the

administrative or investment committee or board of trustees. Approval of the valuation in minutes of the administrative or investment

committee or board of trustees.


Relevant internal controls: Investment commissions and management fees, are reviewed

for reasonableness and adherence to contractual terms. If plan investments are administered under a nondiscretionary

trust agreement or are self-administered (rather than being administered by a trustee), significant investment transactions are approved by the administrative or investment committee or board of trustees and documented in its minutes board of trustees and documented in its minutes.

The investment committee or board of trustees approves all subscription agreements with hedge funds, private equity funds and other alternative investments and approval is documented and other alternative investments and approval is documented in the minutes. Unfunded commitments are monitored.

Regulatory Filingsg y g32

Generally, each defined benefit or defined contribution retirement plan or welfare benefit plan covered under ERISA must file an annual return/report (Form 5500).

Depending on the number and type of participants covered, plans must file one of the following forms:

Form 5500, Annual Return/Report of Employee Benefit Plan,

Form 5500-SF Short Form Annual Return/Report of Small Employee Form 5500 SF, Short Form Annual Return/Report of Small Employee Benefit Plan, or

Form 5500-EZ, Annual Return of One- Participant (Owners and Their Spouses) Retirement PlanSpouses) Retirement Plan.


Certain plans are exempt from filing Form 5500, for example:f f Pension and welfare plans maintain outside the United States primarily for the

benefit of persons substantially all of whom are nonresident aliens. An unfunded pension plan for a select group of management or highly

compensated employees that meets certain requirements, including timely filing f i i i h h DOL of a registration statement with the DOL.

An unfunded dues financed pension benefit plan that meets the alternative method of compliance provided by the Code of Federal Regulations.

A governmental plan. A welfare benefit plan that covered fewer than 100 participants as of the

beginning of the plan year and is unfunded, fully insured, or a combination of insured and unfunded.

An apprenticeship or training plan meeting all of the conditions specified in the An apprenticeship or training plan meeting all of the conditions specified in the Code of Federal Regulations.

An unfunded dues financed welfare benefit plan exempted by the Code of Federal Regulations.


Form 5500 must be filed by the last day of the 7th Form 5500 must be filed by the last day of the 7th calendar month after the end of the plan year.

A plan may obtain a one-time extension of time to file a Form 5500 annual return/report (up to 2½ / p ( pmonths) by filing IRS Form 5558.


Filing through ERISA Filing Acceptance System Filing through ERISA Filing Acceptance System (EFAST2)

80-20 Rule


In the case of plan mergers, a final return/report p g , / pshould be filed for the plan year that ends when all plan assets were legally transferred to the control of

th lanother plan. If the plan was terminated, but all plan assets were

not distributed, a return/report must be filed for each not distributed, a return/report must be filed for each year the plan has assets.

A welfare plan cannot file a final return/report if the plan is still liable to pay benefits for claims that were incurred prior to the termination date, but not yet paidpaid.


Form 8955-SSA - a stand-alone form to be filed with the IRS, as the successor to the Schedule SSA (Form 5500).

For plan years beginning on or after January 1, 2009, the Form 8955-SSA should be used to report certain pinformation relating to each plan participant with a deferred vested benefit.

In general if a Form 8955-SSA must be filed for a plan In general, if a Form 8955 SSA must be filed for a plan year, it must be filed by the last day of the seventh month following the last day of that plan year (plus extensions).

The IRS has also developed a voluntary electronic filing The IRS has also developed a voluntary electronic filing system for filing Form 8955-SSA.


File Form 5330 (Return of Excise Taxes Related to Employee Benefit Pl ) i h h IRS li bl i h f ll i Plans) with the IRS to pay any applicable excise tax on the following transaction or events: A minimum funding deficiency A failure to comply with a funding improvement or rehabilitation plan A failure to comply with a funding improvement or rehabilitation plan A failure to meet requirements for plans in endangered or critical status Nondeductible contributions to qualified plans A prohibited transaction A prohibited transaction Excess contributions to plans with cash or deferred arrangements Reversions of qualified plan assets to employers

The due date of Form 5330 depends on the event or transaction that gives rise to the excise tax.


Forms 990 and 990-EZ are used by tax-exempt organizations, to provide the IRS with the information required by IRC Section 6033.

Pension plans are exempt from filing Form 990, Return of Organization Exempt from Income Tax.

Welfare plans must file with the IRS an annual information return (Form 990 or 990-EZ) or submit an annual electronic notice (Form 990-N) depending upon the organization’s gross receipts and total assets.p g g p

Form 990 must be filed by the 15th day of the 5th month after the organization’s accounting period ends.

Use Form 8868 to request an automatic 3 month extension of time to file Use Form 8868 to request an automatic 3-month extension of time to file. Use Form 8868 also to apply for an additional (not automatic) 3-month extension if the original 3 months was not enough time.


Qualified benefit plans are not generally subject to income taxation. H l t d b i t bl i (UBTI) f t t tit i However, unrelated business taxable income (UBTI) of a tax-exempt entity is subject to taxation. UBTI is: gross income derived from an unrelated trade or business that is regularly

carried on, less allowable deductions directly connected with the trade or business.

Schedule K-1, box 20, code V, indicates the unrelated business taxable i f h hiincome from the partnership.

Unrelated income specifically excludes:Di id d i l i f l d i l Dividends, interest, royalties, rents from real property, and gains or losses from the sale, disposition, or exchange of property not held for sale in the ordinary course of business.

However, a VEBA trust for Single Employer Plan may be subject to UBTI on their investment income, if the assets of the corresponding welfare plan exceed certain allowable reserves.


Unrelated business gross income of more than $1,000 must be reported F 990 T (E t O i ti B i I T R t )on Form 990-T (Exempt Organization Business Income Tax Return).

An employees’ trust defined in section 401(a) must file with the IRS Form 990 T by the 15th day of the 4th month after the end of its tax year 990-T by the 15th day of the 4th month after the end of its tax year. All other organizations must file with the IRS Form 990-T by the 15th day of the 5th month after the end of their tax year.

Trusts may request an automatic 3-month extension of time to file by using Form 8868.

If more than the initial automatic 3 months is needed, trusts may file a second Form 8868 to request that an additional, but not automatic, 3-month extension be granted by the IRS.

401(k) Diagnostics and Risk Assessment( ) g42

The Plan’s risk assessment is one of the 5 The Plan s risk assessment is one of the 5 components of internal control.

Risk assessment is the Plan’s identification and l i f l i k hi f i analysis of relevant risks to achievement of its

objectives, forming a basis for determining how h i k h ld b dthe risks should be managed.

401(k) Diagnostics and Risk Assessment( ) g43

General General Contributions Records Records Investments S i P id Service Providers Participant Disclosures

R l R Regulatory Reporting Withdrawals/Loans

DOL Expectationsp44

Fiduciaries are acting prudently and in the best interest of i iparticipants.

Plan is operating in accordance with its plan document and its plan document is in agreement with ERISA and IRC.P i i i ll i d i d di l Participants are given all required notices and disclosures.

Plan has filed all required informational and tax returns timely, completely and accurately.S i id lifi d d h i f bl Service providers are qualified and their fees are reasonable.

Services providers are monitored by fiduciaries. Plans are being audited by independent CPAs when required. Plan is not engaging in prohibited transactions. Plan investments are diversified and monitored by fiduciaries. The Plan has strong internal controls.g

Speaking the Language of the EBP P f i lProfessionals

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CODA CCTVested Benefits

GIC

CODA CCT

GAAP/GAASNAV

Unfunded Pl

GIC

ERISAIRC

Plan Form 5500 ERISA

TPAADP

MTIA

Noncontributory PlanDiscretionary HSA

DB/DCTPA

PlanDiscretionary Trust


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403(b) plan. A 403(b) plan is a retirement savings arrangement sponsored by certain not for profit organizations (such as hospitals and private colleges) and pubic schools. They are defined contribution plans g ( p p g ) p y pwith individual salary deferral limits that are similar, but not identical to, 401(k) programs.

ACP: Actual Contribution Percentage Test. A test performed by plan administrators to determine whether matching and after-tax contributions to a plan are skewed in favor of highly compensated employees in a discriminatory manner.

ADP: Actual Deferral Contribution Test A test performed by plan administrators to determine whether ADP: Actual Deferral Contribution Test. A test performed by plan administrators to determine whether salary deferral contributions to a 401(k) plan discriminate in favor of highly compensated employees.

Annuity contract. A contract in which an insurance entity unconditionally undertakes a legal obligation to provide specified pension benefits to specific individuals in return for a fixed premium.

Benefit responsive investment contract. A contract between an insurance company, a bank, a financial i tit ti fi i ll ibl tit d l th t id f t t d t i i l institution, or any financially responsible entity and a plan that provides for a stated return on principal invested over a specified period and that permits withdrawals at contract value for benefit payments, loans, or transfers to other investment options.

CFR . Code of Federal Regulations. COBRA . Consolidated Omnibus Budget Reconciliation Act.g CODA. Cash or deferred arrangement. Under such an arrangement, a participant is permitted to elect to

receive amounts in cash or have them contributed to the plan. Contract value. The value of an unallocated contract that is determined by the insurance company in

accordance with the terms of the contract.C h b l l A f f f Cash balance plan. A defined benefit plan that maintains hypothetical accounts for participants. The employer credits participants’ accounts with a certain number of dollars each plan year and promises earnings at a specified rate. Interest in the account balance is credited at a stated rate which may be different from the plan’s actual rate of return.


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CCT: Common or Commingled Trust. A trust for the collective investment and reinvestment of assets contributed from employee benefit plans maintained by more than one employer that is administered by a contributed from employee benefit plans maintained by more than one employer that is administered by a bank, trust company, or similar institution that is regulated, supervised, and subject to periodic examination by a state or federal agency.

Contributory plan. An employee benefit plan under which participants bear part of the cost.

Defined benefit pension plan. A pension plan that specifies a determinable pension benefit, usually based on factors such as age, years of service, and salary.

Defined contribution plan. A plan that provides an individual account for each participant and provides benefits that are based on (a) amounts contributed to the participant's account by the employer or

l (b) i t t i d ( ) f f it ll t d t th t l d i i t ti employee, (b) investment experience, and (c) any forfeitures allocated to the account, less any administrative expenses charged to the plan.

Directed Trust. An arrangement in which a trustee acts as custodian of a plan’s investments and is responsible for collecting investment income and handling trust asset transactions as directed by the party named as having discretion to make investment decisions named as having discretion to make investment decisions.

Discretionary Trust. An arrangement in which the trustee has discretionary authority and control over the investments and is authorized by the plan to make investment decisions.

DOL. Department of Labor.

EBSA. Employee Benefit Security Administration.


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Eligible compensation. Various aspects of compensation (for example , base wages, overtime, and bonuses) as specified by the plan document that are considered in the calculation of plan bonuses) as specified by the plan document that are considered in the calculation of plan contributions for defined contributions plans and in the determination of benefits in a defined benefit plan.

ERISA. The Employee Retirement Income Security Act of 1974. ESOP: Employee stock ownership plan. An employee stock ownership plan is an employee benefit plan that

i d ib d b h E l R i I S i A f 1974 d h I l R C d f is described by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 as a stock bonus plan, or combination stock bonus and money purchase pension plan, designed to invest primarily in employer stock.

Fair value. The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

FASB. The Financial Accounting Standard Board. Form 5500. A joint-agency form developed by the DOL, IRS and PBGC, which may be used by employee

benefit plans to satisfy the annual reporting requirements of the IRC and Titles I and IV of ERISA. Frozen plan. See Wasting Trust. Funding policy. The program regarding the amounts and timing of contributions by the employer(s),

participants, and any other sources to provide the benefits a pension plan specifies. Full-scope audit. An audit of the financial statements of an employee benefit plan in accordance with

generally accepted auditing standards. GAAP. Generally Accepted Accounting Principles. GAAP. Generally Accepted Accounting Principles. GAAS. Generally Accepted Auditing Standards.


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General account. An undivided fund maintained by an insurance entity that commingles plan assets with other assets of the insurance entity for investment purposes. That is, funds held by an insurance entity that y p p , y yare not maintained in a separate account are in its general account.

GIC: Guaranteed Investment Contract. A contract between an insurance company and a plan that provides for a guaranteed return on principal invested over a specified time period.

HCE. Highly compensated employee. HDHP. High-deductible health plan. Health and welfare benefit plan. A plan that provides (a) medical, dental, visual, psychiatric, or long-term

health care; certain severance benefits; life insurance; accidental death or dismemberment benefits; (b) unemployment, disability, vacation or holiday benefits; and (c) other benefits such as apprenticeships, tuition assistance, day-care, dependent care, housing subsidies, or legal services benefits.

HIPAA. Health Insurance Portability and Accountability Act. HRA. Health reimbursement account. HSA. Health savings account. IBNR. Claims incurred by eligible participants but not yet reported to the plan.y g p p y p p Individual Separate Account. A separate account maintained by an insurance company in which only one

plan participates. Investment fund option. An investment alternative provided to a participant in a defined contribution plan. Insured plan. A plan funded through an insurance contract. KSOP. ESOP that also has a 401(k) feature.


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IRC. The Internal Revenue Code. Limited scope a dit A dit i hi h ERISA ll th l d i i t t t i t t th dit t t Limited-scope audit. An audit in which ERISA allows the plan administrator to instruct the auditor not to

perform any auditing procedures with respect to information prepared and certified by a bank or similar institution, or by an insurance carrier that is regulated, supervised, and subject to periodic examination by a state or federal agency.

MTIA. Master Trust Investment Account. A Master Trust is a combined trust account made up of assets of some or all of the employee benefit plans of an entity that sponsors more than one plan or a group of some or all of the employee benefit plans of an entity that sponsors more than one plan or a group of corporations under common control. Each plan has an undivided interest in the assets of the trust, and ownership is represented by a record of proportionate dollar interest or by units of participation. Money purchase pension plan. A defined contribution plan under which employer contributions are based on a fixed formula that is not related to profit and that is designated as a pension plan by the plan sponsor.

Multiemployer plan. An employee benefit plan to which two or more unrelated employers contribute, Multiemployer plan. An employee benefit plan to which two or more unrelated employers contribute, usually pursuant to one or more collective-bargaining agreements.

Multiple-employer plan. An employee benefit plan maintained by more than one employer but not treated as a multiemployer plan.

Named fiduciary. An office or person identified by name in the plan document as responsible for the operation and administration of a planoperation and administration of a plan.

Net assets available for benefits. The difference between a plan's assets and its liabilities. Noncontributory plan. An employee benefit plan under which participants do not make contributions. Participant directed investment programs. A plan provides for participant-directed investment programs if

it allows participants to choose among various investment alternatives it allows participants to choose among various investment alternatives.


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Party in interest. A fiduciary or employee of the plan, any person who provides services to the plan, an employer whose employees are covered by the plan, an employee association whose members are covered p y p y y p , p yby the plan, a person who owns 50 percent or more of such an employer or employee association, or relatives of such person just listed.

PBGC. The Pension Benefit Guaranty Corporation. Profit-sharing plan. A defined contribution plan that is not a pension plan (as defined in the Internal

Revenue Code) or a stock bonus plan Employer contributions may be discretionary or may be based on a Revenue Code) or a stock bonus plan. Employer contributions may be discretionary or may be based on a fixed formula related to profits, compensation, or other factors. Before 1987, contributions had to be made from the plan sponsor's current or accumulated profits. This requirement is no longer in effect. A profit-sharing plan must be designated as such in the plan document.

Prohibited transaction. A transaction between a plan and a party in interest that is prohibited under Section 406(a) of ERISA.Section 406(a) of ERISA.

PSA: Pooled Separate Account. A separate account maintained by an insurance company in which several plans participate.

Self-directed plan. A defined contribution plan in which the participant authorizes specific investment transactions, such as purchases and sales of specific common stocks or bonds. A self-directed plan does not provide predetermined investment fund optionsprovide predetermined investment fund options.

Self-funded plan. A plan funded through accumulated contributions and investment income. Separate account. A special account established by an insurance entity solely for the purpose of investing

the assets of one or more plans. Funds in a separate account are not commingled with other assets or the insurance entity for investment purposes.

Single employer plan. A pension plan that is maintained by one employer.


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Sponsor. In the case of a pension plan established or maintained by a single employer, the employer; in the case of a plan established or maintained by an employee organization, the employee organization; in the p y p y g , p y g ;case of a plan established or maintained jointly by two or more employers or by one or more employers and one or more employee organizations, the association, committee, joint board of trustees, or other group of representatives of the parties who have established or who maintain the pension plan.

Stock bonus plan. A defined contribution plan under which distributions are normally made in stock of the employer, unless the distributee elects otherwise.

Synthetic guaranteed investment contract. An investment contract that simulates the performance of a traditional guaranteed investment contract through the use of financial instruments.

Target benefit plan. A form of money purchase pension plan under which the employer's annual contribution on behalf of each participation is the actuarially determined amount required to fund a target benefit established by a plan formula.established by a plan formula.

Third-party administrator (TPA). A party unrelated to the plan who contracts to be responsible for plan administration.

Thrift plan. A profit-sharing or stock bonus plan under which participants make after-tax employee contributions that are usually matched, in whole or in part, by employer contributions.

Top Heavy. A defined contribution plan is top heavy if, as of the determination date, the aggregate of the accounts of key employees under the plan exceeds 60 percent of the aggregate of the accounts of all employees under such plan.


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UBTI: Unrelated business taxable income. Gross income derived from an unrelated trade or business that is regularly carried on less allowable deductions directly connected with the trade or businessis regularly carried on, less allowable deductions directly connected with the trade or business.

Unallocated contract. A contract with an insurance company under which related payments (i.e., investment payments) to the insurance company are accumulated in an unallocated fund to be used to meet benefit payments when the employees retire.

Unfunded plan. A plan whereby benefits are paid directly from the general assets of the employer or the employee organization that sponsors the plan.

Unit of participation. An undivided interest in the underlying assets of a trust.

Vested benefits. Benefits that are not contingent on an employee's future service.

Wasting trust. A plan under which participants no longer accrue benefits but that will remain in existence as long as necessary to pay already-accrued benefits.

Questions?54

Disclaimer55

NOT A SOLICITATION. No information provided herein shallNOT A SOLICITATION. No information provided herein shallconstitute, or be construed as, an offer to sell or a solicitationof an offer to acquire any security, investment product or

i h ll h i d i bservice, nor shall any such security, product or service beoffered or sold in any jurisdiction where such offer orsolicitation is prohibited by law or regulation. This material isprovided for informational purposes only and does notconstitute a recommendation of any investment strategy orproduct described herein Opinions expressed are those of theproduct described herein. Opinions expressed are those of thepresenter(s) and subject to change without notice.

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Gary BroderSenior PartnerTel. no. [email protected]

Bob HamiltonSenior Audit ManagerTel no 212 404 5484Tel. no. [email protected]

Hosanna Custodio Hosanna CustodioAudit ManagerTel. no. [email protected]@ p

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