table of contents - amec participant...questionnaire to be completed and sample templates. if you...

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TABLE OF CONTENTS

Section 1: Introduction ..................................................................................................................................... 2

Section 2: Participant Review Timeline and Checklist ..................................................................................... 3

Participant Review Checklist ........................................................................................................................ 4

Section 3: Frequently Asked Questions (FAQs) ............................................................................................... 5

Section 4: Eligibility Rules/Concepts ............................................................................................................. 13

Appendix A: Agreed-Upon Procedures .......................................................................................................... 26

401(k) Pension Plan Procedures.................................................................................................................. 27

Retirement Security (RS) Plan Procedures ................................................................................................. 30

Group Benefits Program (Medical Plan Only) Procedures ......................................................................... 32

Appendix B: Controls Assessment and Questionnaire ................................................................................... 34

Appendix C: Sample Reports and Documents ................................................................................................ 42

Sample 401(k) Plan Audit Report ............................................................................................................... 43

NRECA Participant Eligibility Review Letter of Intent .............................. Error! Bookmark not defined.

Participant Review Resource Guide – Regions 8 & 10 |

Section 1: Introduction

NRECA strives to collaborate with employers like you to preserve the integrity and financial health of our employee benefit plans. To support this goal, the Insurance & Financial Services and Administrative Committees of the NRECA Board of Directors has implemented a policy of regular eligibility audits for the NRECA 401(k) Pension Plan, Retirement Security (RS) Plan, and Medical Plan (the “plans”) to help ensure that eligible participants are properly enrolled in your cooperative’s benefits plan(s). To that end, a Participant Review will be conducted at all co-ops that participate in the 401(k) Plan, RS Plan, and Medical Plan once every four years. Your co-op has been selected to participate in the Participant Review in 2015.

There are two main reasons for this effort. First, it is consistent with the recommendation of the American Institute of Certified Public Accountants (AICPA) and enhances the continued financial integrity of the Plans. Second, regular eligibility audits help preserve the tax-qualified status of the Plans for all participating co-ops.

Cyclical audits have several added advantages. They can identify and resolve eligibility issues and help avoid unexpected costs that a co-op could face if issues were discovered during an IRS audit. The Participant Review will also protect co-ops by confirming that the employee groups are provided access to the various benefit plans offered by the co-op.

Your co-op will need to retain an independent accounting firm to perform the Participant Review in 2015. Alternatively, if your co-op has a total headcount of 50 or fewer employees you have the option of requesting that NRECA’s internal audit department conduct the review for you for a flat fee of $1,000. To initiate this process, contact the internal audit department by email or phone as provided at the bottom of this page.

To get started, we recommend that you review and discuss the contents of this guide with key co-op personnel, and in particular, you should retain an auditor for the Participant Review as soon as possible. Included in this guide you will find: contact information for resources at NRECA; an audit timeline; an audit checklist; frequently asked questions; and an overview of key eligibility rules and concepts. The appendices include resources that will be useful when discussing this engagement with your auditors, such as the procedures to be performed, the questionnaire to be completed and sample templates.

If you have any questions about the Participant Review, please contact a member of the NRECA internal audit department. We hope you find this information helpful and comprehensive. Thank you, in advance, for your help and cooperation.

Internal Audit Department Contact Information Chris Migliaccio, CPA Director, Internal Audit 703.907.6442 (Direct) 703.907.5594 (Fax) [email protected]

Michelle Goeller, CPA Senior Plans Auditor 703.907.5915 (Direct) 703.907.5594 (Fax) [email protected]

Minneh Bennett, CPA Senior Plans Auditor 703.907.5687 (Direct) 703.907.5594 (Fax) [email protected]


Section 2: Participant Review Timeline and Checklist

Oct

2014

• Announce-ment letter sent to co-

op

December 2

2014

• Webinar for

co-ops

Jan 29,

2015

• Webinar for CPA firms

Jan-Jun 2015

• Planning period for

co-ops

Jul - Dec

2015 • Testing

period

Dec 18,

2015

• Deadline for review complete

• October 2014: Announcement of the Participant Review to the co-ops selected along with Participant Review requirements.

• December 2, 2014: NRECA will conduct a webinar for co-ops to learn more.

• January 29, 2014: NRECA will conduct a webinar for CPAs to learn more.

• January 2015 – June 2015: Co-ops should prepare and plan for the review by: engaging key staff to review the necessary resources and understand the requirements of the review. The co-op must retain an independent accounting firm or NRECA for the Participant Review (independent accounting firm is required for co-ops with 51 or more employees; co-ops with 50 or fewer employees may use an independent accounting firm or NRECA). Co-ops should prepare and plan for the Participant Review by gathering the necessary reports and documents that will be needed for the Participant Review testing period that begins July 1, 2015.

• July 2015: NRECA will conduct a webinar for accounting firms conducting the reviews

• July 1, 2015 – December 18, 2015: Participant Review testing is conducted by an independent accounting firm or NRECA, as applicable.

• December 18, 2015: Deadline for co-ops to submit Participant Review report(s) to NRECA’s internal audit department. Reports can be sent via email to [email protected] or via mail to:

NRECA Attn: Internal Audit – 2015 Participant Review Report

4301 Wilson Blvd., OGC 9th Floor Arlington, VA 22203


Participant Review Checklist

Prior to Conducting the Participant Review

Internal Announcement – Notify key staff (general manager, financial and human resources personnel) and conduct a kick-off meeting to establish roles and responsibilities.

Attend the NRECA Participant Review webinar. This will help address any eligibility questions you may have and to gain a better understanding of the Participant Review requirements.

If your co-op has 51 or more employees, retain a qualified independent accounting firm to conduct the Participant Review. If possible, leverage current firm, or send a Request for Proposal, and/or contact NRECA for a possible accounting firm to conduct the Participant Review.

If your co-op has 50 or fewer employees and you would like NRECA to conduct your audit, contact the NRECA internal audit department as soon as possible to secure a date for the Participant Review and to complete an engagement letter.

Provide the Participant Review procedures from NRECA (see Appendix A) to the independent accounting firm, if applicable.

Sign and complete the engagement letter provided to you by either your independent accounting firm or NRECA, depending on who is conducting the Participant Review.

Conducting the Participant Review

Complete the Controls Assessment and Questionnaire (CAQ) and provide a copy to the independent accounting firm or NRECA.

Provide all necessary documentation to NRECA or the independent accounting firm to support the completion of the Participant Review.

Consult with NRECA on any issues discovered during the Participant Review.

Consult with NRECA on any Participant Review questions.

After the Participant Review

If an independent accounting firm is conducting the audit, review the report and provide them with any feedback or comments you may have. Send NRECA a copy of the final report by the deadline (December 18, 2015). Maintain a copy of the report for your records. You will receive a letter from NRECA to confirm that your eligibility report has been received.

If NRECA conducted your review, you will receive a copy of the report for your records. Review this report and if you have any feedback or comments, send them to the internal audit department.

NRECA will contact you to resolve any eligibility errors noted in your Participant Review results report.

Enhance internal controls based on any eligibility errors noted during the eligibility review.

Part icipant Review Resource Guide – Regions 8 & 10 |

Section 3: Frequently Asked Questions (FAQs)

1. What is the purpose of the Participant Review? The Participant Review is designed to provide assurance that all co-op employees who are eligible to participate in the plans are properly enrolled and that individual employees’ contributions are correct based on their elections. All procedures requested in the Participant Review support the overall goal of ensuring the correct administration of plan. Additionally, conducting the Participant Review helps protect the integrity and tax-qualified status of the plan(s) as follows:

1) Failure of one co-op to comply with plan eligibility requirements could constitute failure of the entire plan, thereby adversely affecting all co-ops who participate. The Participant Review will help preserve the tax-qualified status of the Plans as a whole by helping to ensure that the Plans are administered in accordance with their respective terms.

2) The Participant Review will help NRECA to identify and correct eligibility issues early,

which helps ensure compliance with federal guidelines and minimize the possibility of unanticipated costs.

3) The Participant Review also protects individual co-ops in the event of an audit of the co-op by

the IRS, which can impose penalties and additional taxes directly on the co-op for failure to include eligible employees in a plan.

2. Is there a rule that requires the Participant Review? The RS and 401(k) Plans sponsored by NRECA are multiple-employer plans under IRS Code §413(c). In an effort to enhance existing audit practices for the benefit of all participating co-ops, the plans’ governing board adopted the standards established by the American Institute of CPAs (AICPA) for auditing plan

eligibility compliance, which specifies that a four-year cycle for employer audits is typical.1 3. I thought NRECA handled all audits for the plans. NRECA engages an independent accounting firm to conduct an annual audit of each the plans as required by federal law. The independent accounting firm that conducts the plan-level audit, BDO USA LLP, will continue to select a sample of co-ops for audit. Our goal with the Participant Review is to enhance audit practices and ensure that all eligible employees are provided the opportunity to participate in the applicable plan(s). 1 AICPA, Employee Benefit Plans, Audit & Accounting Guide, § 10.10 (Jan. 1, 2011).


4. Why is my co-op being selected for the Participant Review this year? In order to devote adequate resources to these reviews, they will be conducted over a four-year period. All co-ops that participate in NRECA’s Employee Benefits Plans will have the reviews conducted according to the below schedule: 2014 – Regions 7 & 9 2015 – Regions 8 &10 2016 – Regions 1 & 4, 2 & 3 2017 – Regions 5& 6 (Beginning of the second audit cycle. The first cyle occurred in 2013) 5. Who can conduct the procedures required by the Participant Review? A qualified independent accounting firm must conduct the Participant Review. However, if your co-op has 50 or fewer employees, you have the option of requesting that the NRECA internal audit department conduct the review for you (their contact information is located in the introduction of this guide). The below table details who can conduct the Participant Review:

Number of Employees at Co-op Participant Review conducted by

51 or more Independent Accounting Firm 50 or fewer Independent Accounting Firm or NRECA

6. Why is NRECA requiring my co-op to pay an independent accounting firm for the Participant Review? NRECA, as the plan sponsor, and the co-ops participating in the plans have a shared responsibility for ensuring compliance with federal regulations and the terms of the plans. A key component of maintaining compliance with those regulations is ensuring that eligible participants are properly enrolled in the benefits plan(s)—and to do that, testing needs to occur at the co-op level. The eligibility criteria reviewed is co-op-specific and there are many variables that factor into the costs of the audit, such as the number of participating and non-participating employees, the number of plans and design complexity, the availability of records, etc. Due to these variables, we believe it is practical and equitable for each co-op to cover the cost of their own expenses for the Participant Review. We encourage each co-op to work with its existing CPA firm to look for ways to help keep the costs down. 7. My co-op has CPAs and/or internal auditors on staff. Can we use them to perform the Participant Review? We are asking each co-op to apply an “Agreed-Upon Procedures” process to ensure the consistency of the eligibility procedures and independence of the results—therefore, an independent accounting firm is required to perform the engagement and produce a report of the findings. Doing this helps to ensure that the report can be relied upon by the plans and the plans’ external auditor.


8. Based on the number of employees at my co-op, I have the option of selecting an independent accounting firm or NRECA to conduct the Participant Review. If I prefer to have NRECA conduct the Participant Review, what do I need to do?

Complete the NRECA Participant Review Letter of Intent (see Appendix D) and send that letter to NRECA’s internal audit department ([email protected]) as soon as possible to secure a date for the Participant Review. NRECA will follow-up with an engagement letter (also known as an agreement) with the specifics for the Participant Review based on your Letter of Intent.

9. Will NRECA be on-site at my co-op if it conducts the Participant Review? NRECA may conduct a small number of on-site visits; however, the vast majority of the Participant Reviews will be conducted remotely. 10. Based on the number of employees at my co-op, I need to retain an independent accounting firm to conduct the Participant Review. What do I need to do? You will need to contact a qualified independent accounting firm and let them know that you will need to conduct what is called an “Agreed-Upon Procedure.” You will need to provide them with the procedures in Appendix A. It is important to note that although you may view this as an audit, in the accounting profession; this is not considered an audit. To avoid confusion, you should be sure to use the term “Agreed-Upon Procedure” in your discussions with the independent accounting firm. 11. What constitutes a “qualified” independent accounting firm? What are the requirements? The independent accounting firm you engage for the Participant Review must be a certified public accounting firm, licensed to practice in your state and in good standing with your state’s board of accountancy. 12. Does the Participant Review need to be conducted on all NRECA benefit plans? The Participant Review will apply for the 401(k) Pension Plan, Retirement Security (RS) Plan, and the Medical Plan. Other programs in the NRECA Group Benefits Program are not part of the Participant Review. 13. If our co-op offers only life insurance, short-term disability, and/or dental plans through the NRECA Group Benefits Program, but we don’t offer the medical plan, do we need to conduct the Participant Review for those plans? If your co-op participates in one or more NRECA group benefit plans but does not participate in the medical plan, you will not need a review for the Group Benefits Program. If your co-op participates in the NRECA medical plan, regardless of other Group products your co-op participates in, then you will be required to undergo the review for the Group Benefits Program.


14. What period of time will be within scope for the Participant Review? Plan data from January 1, 2015, through June 30, 2015, will be under review for the Participant Review. Testing for this period may begin July 1, 2015. 15. What are the testing procedures for the Participant Review? Each of the plans’ testing procedures—called “Agreed-Upon Procedures”—can be found in Appendix A of this guide. 16. What is an “Agreed-Upon Procedure” (AUP)? An “Agreed-Upon Procedure” is an engagement in which an independent accounting firm is consulted for the purpose of issuing a report of findings based on specific procedures performed on a specific subject matter. Because the findings need to be unbiased, the services of an independent accounting firm must be obtained to perform the procedures and report their findings. The users of the report (e.g., NRECA) agree upon the procedures to be performed by the independent accounting firm. The users of the report also assume responsibility for the sufficiency of the procedures since they best understand their own needs. In an agreed-upon procedure engagement, the independent accounting firm does not provide an opinion or negative assurance. Instead, the independent accounting firm is simply reporting on the findings as specified in the agreed-upon procedure. 17. Can my independent accounting firm use the same sample of participating employees for all plans being reviewed under the Participant Review at my co-op?

Yes, in most instances the same sample of employees being tested will work for all plans being reviewed. However, there are situations where employees are participating in only a portion of the plans being tested at your co-op. For example, they may participate in the 401(k) Plan and the RS Plan, but not in the Medical Plan.

18. My co-op has a subsidiary. Will all related entities be selected at the same time? Yes. If you do not receive a Participant Review notification for all of your affiliated entities, please contact the internal audit department so we can be sure to include all related entities in the same review period. 19. What will the final Participant Review report(s) look like? See Appendix C in this resource guide for a sample Participant Review report.


20. Our external auditors cover these areas during our annual financial audit. Can we leverage this work? It is possible that you may be able to leverage the work done by an independent accounting firm during your annual financial audit. However, you must engage the firm specifically for the Participant Review, so we can ensure they have the appropriate agreed-upon procedures, that the agreed-upon procedures have been followed, and that they will provide results for the purposes of the Participant Review. However, since the Participant Review should be related to the work that your independent accounting firm will already be doing for your annual financial audit, they should perform the agreed- upon procedures at a reduced fee. 21. How much will the Participant Review cost? If a qualified independent accounting firm conducts the Participant Review, then this will be dependent on a number of variables, such as the number of employees at your co-op, the number of participating employees, the number of NRECA benefit plans in which your co-op participates, etc.

If NRECA’s internal audit department conducts the Participant Review, there will be a flat fee of $1,000 for services, regardless of the number of Plans being reviewed. You must inform NRECA’s internal audit department by no later than July 24, 2015, if you intend to have them conduct the Participant Review. Additionally, your co-op will not be invoiced until after the review has been conducted. 22. How often will the Participant Review be required? The Participant Review will be required once every four years. For example, if ABC Co-op is selected for the Participant Review for 2015, then the Participant Review scope and procedures would be conducted and completed in 2015 and the next required Participant Review for that co-op would take place in 2019. However, if there are findings that cause concern in the co-op’s Participant Review results, NRECA may conduct a follow-up review sooner than four years. 23. What are my responsibilities for the Participant Review?

NRECA is here to guide you throughout this entire process. However, each co-op will have specific responsibilities. We have captured the more significant ones below:

Engage an independent accounting firm (or NRECA, if applicable) to conduct the Participant Review.

Provide the independent accounting firm (or NRECA, if applicable) with the requested documents. If you are conducting the Participant Review with an independent accounting firm, you must provide them with the procedures in Appendix A. All co-ops will need to provide their selected auditor with the completed Controls Assessment and Questionnaire (CAQ) provided in Appendix B. Other examples of documents that your co-op will need to provide are: employee census, employee contribution elections, time cards, payroll records, etc.


What are my responsibilities for the Participant Review? (Continued)

Contact NRECA’s internal audit department with any questions that arise.

Correct any eligibility issues identified.

Those co-ops using an independent accounting firm must provide NRECA’s internal audit department with the results from the Participant Review by the December 18, 2015 deadline.

Understand that this process is critical in maintaining the tax-qualified status of the Plans.

24. What supporting documents will be required? The specific documents will be dependent on how you administer your benefits. The detailed list can be found in the applicable agreed-upon procedure for each Plan in Appendix A. Additional documents may be requested at a later time by NRECA auditors. Here are some examples of documents that may be required:

Summary plan descriptions

Summaries of material modifications

Employee census

Payroll register

Time cards

Hire date, with supporting documentation (e.g., offer letter)

Date of birth, with supporting documentation (e.g., I-9 form)

Employee salary, with supporting documentation (e.g., pay increase sheet)

Employee elections and deferrals, with supporting documentation (e.g., annual deferral form)

25. The Participant Review procedures mention the following reports: actuary register, participant register, 401(k) contribution register, subscriber register and employee census. What are those reports? With the exception of the employee census, these are reports produced by NRECA. These reports will be needed for the applicable Plan that is being reviewed. Here is a brief description of each report:

The actuary register is a report that NRECA provides that details your co-op’s plan participants in the Retirement Security Plan.

The participant register is a report that NRECA provides that details your co-op’s plan participants in the 401(k) Plan.

The 401(k) contribution register is a report that NRECA provides that details the participant’s employee and employer 401(k) contributions by pay period for the period under review.

The subscriber register is a report that NRECA provides that details your co-op’s plan participants in the Medical Plan.

The employee census is a report that your co-op generates that details all employees that earn a wage for the period under review at your co-op.


26. Will NRECA provide the independent accounting firm with the actuary register, participant register, 401(k) contribution register and subscriber register? Your co-op must obtain those registers from NRECA’s internal audit department and provide them to your accounting firm. To request them, please email [email protected] and provide your co-op’s REA number and what reports you need. Please note the earliest NRECA can provide those reports will be July 10, 2015. NRECA will not release any registers directly to your accounting firm due to privacy concerns. 27. What if the payroll register used at our co-op does not show employer contributions? Sometimes, employer contributions are calculated outside of the payroll system, especially when they are remitted once a year. In those instances, we request that the co-op provide the independent accounting firm or NRECA with the spreadsheet it uses to calculate those contributions. 29. What happens if an issue is discovered?

If an eligibility issue is noted during the Participant Review, NRECA will work closely with the co-op to remedy the situation. We may also conduct a follow-up review to ensure that employees are properly enrolled in the plan(s).

Depending on what is needed to correct the issue, co-ops will be referred to:

Member Benefit Services for paying back contributions plus interest and earnings for an employee, for or enrolling or terminating a participant.

Benefits Compliance for amending the adoption agreement (AA) to change participation for a particular class of employees.

Once the correction(s) are finished, co-ops should update their procedures to reduce the risk of future recurrence. 30. The eligibility rules can be complex. How can I learn more? We know that some eligibility rules are complex and having guidance is helpful. Section 4 in this guide provides more information related to the plans’ eligibility rules and concepts.

If you have questions about audit-related issues, contact a member of the NRECA audit team (see Section 1 of this resource guide). If you have general questions about how eligibility works for your plan, contact NRECA Benefits Compliance at 1.866.673.2299, option 7, or [email protected]. 31. What is the deadline to return the findings report? The deadline to return the findings report will be no later than December 18, 2015. 32. Where do I send the finalized Participant Review report(s)? If you would like to email the final report(s), send them to [email protected]. If you would like to mail the final report(s) to NRECA (e.g., FedEx, USPS, etc.), you can send them to:


NRECA

Attn: Internal Audit – 2015 Participant Review Report 4301 Wilson Blvd, Mailstop: Office of General Counsel 9th Floor Arlington, VA 22203

33. What happens after NRECA receives the finalized Participant Review report(s)? NRECA’s internal audit department will send your co-op a confirmation letter acknowledging that they have received the Participant Review report(s). After reviewing the report(s), there might be follow-up questions, clarification or additional steps needed. NRECA will contact you directly if any of those steps are needed. If nothing else is needed, NRECA will send a closeout letter to the co-op’s general manager letting her/him know the Participant Review has been completed and no additional steps are necessary. 34. Whom should I contact with questions and/or concerns about the Participant Review? If you have questions related to the Participant Review, anyone in NRECA’s internal audit department can assist you. 35. The employee census requires the employee’s gross wages. What exactly is included in gross wages? Gross wages is the total amount of pay an employee receives from his employer. This includes overtime wages and any special pay. This should agree to the total W-2 wages, box 1. The auditor will need to reconcile the gross wages to your co-op’s payroll records.

36. The employee census requires the total hours worked. What exactly is included in total hours worked? Total hours worked should include all hours the employee worked, including regular, overtime, vacation and sick.

37. When preparing the census, should we include directors if they were paid through payroll? Yes. Please include directors if they were paid through payroll because the auditors will be reconciling the total wages, per the employee census, to the payroll report. If the directors are not included, there will be a discrepancy. Please note, however, that directors will not be selected for testing. Please specifically note that they are directors and not employees. 38. Can the co-op’s CPA firm request the participant register, 401(k) contribution register, actuary register and subscriber register on behalf of the co-op ? Can those registers be sent directly to the CPA firm? Requests for those registers should come directly from the co-op to protect the confidential information in them.


Section 4: Eligibility Rules/Concepts

This section is designed to help you understand how eligibility works so that you can prepare for the audit and be sure you are enrolling your co-op’s employees in the plans at the right time. We’ve included:

A checklist to help you review and correct errors in your eligibility practices

Two eligibility “quick reference” charts (“General Rules” and “Hours and Service Details”)

A flowchart to help you count hours under the “1,000 Hour Rule”

A review of certain special eligibility rules and situations

Understanding your Plan provisions and applying these concepts day to day at your co-op helps keep the Plans in compliance, prevent costly mistakes and make audits and daily Plan operations (especially annual nondiscrimination testing) easier.

If you need additional help with these eligibility concepts, contact NRECA Benefits Compliance:

1.866.673.2299, option 7

[email protected] (for 401(k) or RS Plan questions)

[email protected] (for Group Medical Plan questions)


Eligibility Checklist: Are my plans in compliance?

As you prepare for the Participant Review, use these steps as a framework to review your co-op’s eligibility practices. Call NRECA’s Internal Audit staff to discuss and address any issues or gaps you discover.

☐Review the eligibility provisions for your co-op’s plans. These are listed your Adoption

Agreements (for the 401(k) Plan and RS Plan) and in the Benefit Plan Rating section of the NRECA Employee Benefits website within Cooperative.com (for the Group Medical Plan). Specifically, review the eligible classes, excluded employee classes and waiting periods that you’ve selected. In later steps, you’ll compare these elections to your procedures and systems.

☐Brush up on important eligibility concepts, definitions and calculations (see the quick reference

chart on the following pages). These include:

How to count hours using the o 1,000 hour rule (401(k) Plan, RS Plan and Medical Plan) o 84 hour rule (401(k) Plan and RS Plan only)

Important definitions: o Hours of service o The 12 month computation period o Leased employees versus independent contractors, and the IRS tests that distinguish

between them How to decide if a participant is eligible, ineligible or excluded How to track eligibility for employees with breaks in service Separation from service

☐Examine your co-op’s employment procedures and records. Compare them to the eligibility rules and

the elections for your plans. Focus on these areas:

Be sure your employee classes are clearly defined in your employment policies. Ensure that the benefits for each employee class are clearly defined in your employment

policies. These must comply with all applicable government and Plan regulations. For example, part time, seasonal and temporary employees cannot be excluded from participation in the retirement plans simply because of their employment status.

Update your policies and procedures if they are out of date and do not reflect the latest elections in your plan adoption agreements.

Be sure your job descriptions are up to date and that they support the employee classes that are included or excluded from participating in your co-op’s plans.

Be sure you have documented your employees’ prior service with other member cooperatives, since prior service may count towards eligibility in your plans.


☐Ensure that systems, controls and processes are in place to:

Monitor hours of service. Track employees’ prior service with your co-op and other member co-ops. Enroll employees in the proper plans at the correct time.

☐Compare your procedures and records with your plan provisions. Ensure you are operating according

to your plan elections.

☐Refer to Cooperative.com for more in-depth information about compliance concepts and topics. See

the section titled “For More Information” at the end of this section.

☐Contact NRECA if you need help.

• For questions about eligibility, such as counting hours, excluded classes, leased employees,

and eligible or excluded classes, contact Benefits Compliance. See FAQ #34 for Benefits Compliance contact information.

• For questions about the audit process and content, contact the Internal Audit staff listed in the Introduction to this guide.


Special Eligibility Rules and Situations

You may encounter some eligibility situations that need a little extra thought or discussion. Here are some rules governing those circumstances. NRECA staff members are here to help if you need to talk through a scenario.

1. Rehires

401(k) Plan and RS Plan

Employees must meet the retirement plan eligibility requirements only once. Employees who previously met the service requirements either at yours or a different co-op are eligible to participate immediately upon rehire. This is true even if they retired and came back on a part-time basis. Exceptions include:

Employees who are rehired into an excluded class.

Employees whose first period of participation is less than the eligibility requirement at their new co-op.

Employees who return to work before incurring a break in service (see “Break in Service” on Page 14) will also have their prior service counted towards eligibility when rehired.

Rehired employees who did not satisfy the plan’s eligibility requirements prior to their break in service may not have their prior service counted towards the eligibility requirement.

Medical Plan

Breaks in service over 6 months: o None of the previous employment can be applied to the new waiting period o The new employee must meet your co-op’s waiting period requirements.

Breaks in service under 6 months: o All time worked previously (at yours or another participating co-op) within the last 12

months must be applied to your co-op’s waiting period.

Rehired Retirees

This subset of rehires can’t be excluded from benefits simply because of their prior status as retirees. Please call NRECA compliance or discuss with counsel to avoid any pitfalls with excluded classes.

RS Plan: Benefit credit cannot be given twice for the same year. If an employee retires on or after their normal retirement age and takes a distribution, he/she receives benefit credit for the rest of the calendar year in which he/she retired. If that employee returns within the same year, you can’t put him or her back into the Plan until the first day of the next year.

Medical Plan: Coverage for rehired retirees depends on the number of hours worked. o Fewer than 1,000 hours: keep retiree coverage. o 1,000 hours or more: treat the retiree as a regular rehired employee.


Prior service

o For the 401(k) Plan and RS Plan

Eligibility is met once. An employee who participated in the plan(s) either with your or another participating co-op and already met the eligibility requirements is eligible on their rehire date, unless that employee is rehired into an excluded class.

If the prior eligibility period was shorter than the co-op’s current eligibility period, the rehired employee must complete the current eligibility period before he or she can participate in the Plan.

o For the Medical Plan, count service at a prior co-op if it occurred within the last 12 months. If the employee’s separation date from the prior co-op is less than six months from the hire date at your co-op, apply all the time worked at the last co-op within the last 12 months to your plan's waiting period. The new employee may not have to fulfill the waiting period but, he/she must apply for coverage within 31 days from the date of hire or wait until the next annual enrollment, life event or employment event.

If an employee’s service at another co-op qualifies (meaning you count it) and the time worked there is longer than your Plan's waiting period, the waiting period is satisfied. If the time worked at the last co-op is less than your plan's waiting period, the employee has to work only the time that is left before becoming eligible. A best practice when determining medical plan eligibility for a rehire is to ask these questions: Does the employee have service with your or another co-op within the last 12 months? If no, there is no prior service to apply towards your plan’s waiting period. If yes, is the employee’s prior separation date less than six months from the hire date at your co-op? If yes, apply all the time worked at the last co-op within the last 12 months to your plan's waiting period. The new employee may have already fulfilled the waiting period outlined in your co-op’s medical plan SPD. If no, then there is no prior service to apply towards your plan’s waiting period and the employee needs to meet your co-op’s waiting period as described in your medical plan SPD.

2. Breaks in service during the initial eligibility/waiting period:

Retirement Plans

If an employee does not work 1,000 hours in the first 12 months at your co-op, then works 501 or fewer hours in the next calendar year, he or she has incurred a break in service. If the employee is rehired at your co-op, you must ignore their service up to and including that calendar year. Treat the day they are rehired at your co-op as the first day of the new eligibility period.

Conversely, if an employee does not work 1,000 hours in the first 12 months of service, then works more than 501 hours in the next calendar year, there is no break in service. You would include the service from the original hire date when calculating eligibility.


3. Contract versus leased employees:

Distinguishing between leased employees and independent contractors is relevant so that you can determine who is eligible to participate in your Plans.

Independent contractors could be common law employees and, if so, would need to be covered under your Plans. The IRS requirements for independent contractor status are strict and complex. Consult with your co-op’s tax or legal advisor to be sure the status is appropriate before categorizing a worker as an independent contractor and excluding him or her from your benefit plans. Leased employees must be considered for retirement plan purposes. They are excluded from participation in your co-op’s NRECA retirement plans, unless you choose to cover them. However, a leased employee’s service may count towards eligibility in your plan if that employee is later hired by your co-op. In addition, leased employees are counted in some nondiscrimination tests, regardless of whether they participate in your plans. For these reasons, be sure that you’re correctly categorizing leased employees, and that they meet the IRS requirements for a leased employee. Leased employees are not eligible for coverage under the Medical Plan.

Below is a summary of the characteristics of leased and contract employees. Please work with your tax or legal advisor to properly categorize workers. Call Benefits Compliance if you need assistance determining whether any leased employees or independent contractors are eligible for your plans or should be counted in the retirement nondiscrimination testing for your plans.

Independent contractor Leased Employee

Workers are self-employed. Co-op usually contracts directly with the worker

Workers are hired through a temporary or staffing agency. Co-op contracts with a third party staffing agency.

Not eligible to participate unless common- law employees

Not eligible to participate unless the co-op elects to add as an eligible class (on the adoption agreement)

Service does NOT count towards eligibility

Service may count towards eligibility

Apply the common-law employee test*

Apply the leased employee test* (IRS §414 (n))

Not included in nondiscrimination tests

Included in some nondiscrimination tests

*Consult with your tax or legal advisor to clarify these IRS tests.

4. Different eligibility/waiting periods

If your co-op’s 401(k) and RS Plans have different eligibility periods or if your 401(k) plan has different eligibility periods for employer and employee contributions, remember to count and track hours of service separately for each type of contribution or plan.


5. Employees who move from full time to part time:

401(k) Plan and RS Plan: When an employee moves from full time to part time, it does not affect eligibility. Once an employee is eligible, he or she remains eligible.

Medical Plan: An employee who works under 1,000 hours in a year is no longer eligible for Group Medical coverage. Coverage ends on the first of the year following the year in which less than 1,000 hours is worked. (This scenario may impact COBRA coverage. For additional information, please contact NRECA Group Compliance.)

6. Separation from service:

To maintain the qualified status of the NRECA benefit plans (RS Plan, 401(k) Plan and Medical Plan), the IRS requires that benefits be provided only to employees, beneficiaries, and former employees(in the case of the Medical Plan), of the employer. This is known as the “exclusive benefit rule” under DOL regulations. If ineligible individuals participate in the Plans, the tax- qualified status of the Plans is jeopardized. Treasury regulations define an employee as someone who performs services for the employer.

The correct termination date An employee’s termination date is the date when the employee is no longer credited with time for performing services for the employer. Recording the proper termination date ensures the proper coverage end date for the Medical Plan and means that COBRA, retiree medical, Medicare and Medicare Part D benefits will be administered correctly under the regulations.

For retirement and group benefit plans:

Don’t include time after an employee’s termination (but while you are still paying for accrued vacation time or severance) in the employee’s period of service. The termination date you provide to NRECA should be the day that the employee’s hours worked drop to zero.

For retirement plans only:

Don't include severance payments or compensation received after a worker ceases to perform services (including vacation or PTO accruals paid over time after an employee is no longer working) in compensation for calculating 401(k) Plan and RS Plan benefits.


For More Information

NRECA’s online publications provide more detailed discussions of certain eligibility concepts and can answer many of your eligibility questions. See the following resources for more details:

Eligibility: Go to Cooperative.com > My Benefits > Document Library > Documents for Co-ops > Retirement Plans > All Plans > Eligibility: Back to Basics

Group and retirement eligibility basics: go to Cooperative.com > My Benefits > Administration > BA Assistant > Learn About Benefit Plans > Eligibility.

Benefits termination date: go to Cooperative.com > My Benefits > Document Library > Documents for Co-ops > Overall Benefits > Explanation: Real Benefits Termination Date

If you need help, contact the NRECA Benefits Compliance team at 1.866.673.2299 or [email protected] for Group Benefits questions or [email protected] for your 401(k) Plan or RS Plan questions.


Appendix A: Agreed-Upon Procedures


Agreed-Upon Procedures

This section details the Participant Review “Agreed-Upon Procedures” (AUP) requirements for each of the plans. If your co-op has retained an independent accounting firm for the Participant Review, please share these procedures with them.

401(k) Pension Plan Procedures

Perform the following procedures:

1. Controls Assessment and Questionnaire (CAQ). Obtain the completed CAQ from the co-op. Review the CAQ to ensure that all sections have been completed and explained in detail so that there is a clear understanding of how the co-op’s processes are designed. If any section of the CAQ has not been completed and/or if any section is unclear then inquire with the co-op on why they failed to complete a section and/or what is unclear. Provide the co-op an opportunity to update the CAQ based on any incomplete section(s) and/or updating a process for a better understanding. Report any suggestions for control improvements in the comments section of the CAQ. Provide a copy of the CAQ to NRECA.

2. Completeness of Employee Census. Obtain a copy of the Employee Census as of 6/30/15 from the co-op. The Employee Census should include: all W-2 employees from the period January 1, 2015 through June 30, 2015, full name, job title, union or nonunion, subgroup number (e.g. 001, 002, etc.), date of birth, date of hire, date of termination (if applicable), date of rehire (if applicable), hours worked, gross wages, authorized pay rate (either salary or hourly rate), yes or no – participates in 401(k) plan, employee 401k deferrals and employer 401k contributions.

2(a) Reconcile total gross wages per the Employee Census (as of 6/30/15) to any one of these documents: payroll/labor distribution report (as of 6/30/15) or to the co-op’s quarterly IRS Federal Tax Return Form 941 for the first and second quarters of 2015. Report the reconciliation and any differences (greater than 2%) resulting from this step and obtain management’s explanation for the differences. Attach Employee Census and Reconciliation with report.

2(b) Obtain the NRECA 401(k) Contributions Report from the co-op. Reconcile the 401(k) employee deferrals and employer contributions totals from the Employer Census to the NRECA 401(k) Contribution’s Report. Report the reconciliation and any differences resulting from this step and obtain management’s explanation for the differences. Attach Employee Census and Reconciliation with report. Note: The co-op must request the NRECA 401(k) Contributions Report directly from NRECA’s internal audit department, send the request to [email protected] and include the co-op’s REA number(s).


3. Determination of Participating and Non-participating Employees. Using the Employee Census, sort to segregate the population into two categories: participating employees and non-participating employees (use contributions to determine participation or non-participation in the plan). Select a random sample, ensuring that both of the categories, participating and non-participating, are included in your total sample size based on the below table:

Number of total employees on employee census

Sample size for participating 401(k) employees

Sample size for non- participating employees

1 – 25 employees 5 4



150 or more employees 5 10

4. Participant Register. Obtain the Participant Register as of 6/30/15 directly from the co-op. Note: The co-op must request the Participant Register directly from NRECA’s internal audit department, send the request to [email protected] and include the co-op’s REA number(s). The Participant Register contains all employees actively participating in the 401(k) Plan.

5. Personnel Data Verification. For each sampled employee, verify the date of birth, date of hire, date of termination (if applicable), date of rehire (if applicable) and compensation contained on the Employee Census to supporting documentation maintained in the co-op personnel files. Additionally, verify date of birth and date of hire contained on the Participant Register to Employee Census. Report the type of supporting documentation used to validate employee data, any differences resulting from this step and obtain management’s explanation for the differences.

6. Eligibility. Obtain all of the co-op’s summary plan descriptions (“SPDs”) and/or summary of material modifications (“SMMs”) as of 6/30/15. Based on the co-op’s eligibility requirements as defined in their SPD/SMM, determine if sampled employees are properly included or excluded from the Plan by evaluating each employee’s eligibility. Determine if eligible but non-participating employees have documentation of their election to opt out of the Plan. Report any improper inclusion/exclusion from the Plan and obtain management’s explanation.

7. Authorized Pay Rate. For each sampled employee selected, validate the authorized pay rate from the employee census to supporting documentation. Supporting documentation should be authorized by someone in the co-op that has that authority. Report the sampled employee, the pay periods, and any differences resulting from this step and obtain management’s explanation for the differences.

8. Hours Worked. For each sampled employee, obtain from the co-op supporting documentation (e.g. payroll system report) that reconciles to the employee census total hours worked. Note any differences resulting from this step, and obtain management’s explanation for the differences.

9. Employee Deferrals. For each employee sampled, select one pay period from January through March 2015 and another pay period from April through June 2015. Obtain the payroll register for each period selected, the NRECA 401(k) Contribution’s Report, and sampled employee’s deferral election forms.


Recalculate the 401(k) deferrals and tie recalculated deferrals to the payroll registers and NRECA 401(k) Contribution’s Report, noting any differences. Obtain management’s explanation for the differences. Attach workpapers indicating sampled employees tested, pay periods, etc.

10. Employer Contributions. For each employee sampled, using the same pay periods selected from the above step (Employee Deferrals), recalculate the 401(k) employer contributions and tie to the co-op’s 401k contributions report or payroll register. Note: Use the approved employer contribution percentage contained in the Plan Documents for your recalculation. Report any differences resulting from this step and obtain management’s explanation for the differences. Attach your findings.


Retirement Security (RS) Plan Procedures



2. Completeness of Employee Census. Obtain a copy of the Employee Census as of 6/30/15 from the co-op. The Employee Census should include: all W-2 employees from the period January 1, 2015 through June 30, 2015, full name, job title, union or nonunion, subgroup number (e.g. 001, 002, etc.), date of birth, date of hire, date of termination (if applicable), date of rehire (if applicable), hours worked, gross wages, authorized pay rate (either salary or hourly rate), yes or no – participates in RS plan, and employee’s 11/15/13 salary.


3. Sample Selection. Using the Employee Census, sort to segregate the population into two categories: participating employees and non-participating employees. Select a random sample ensuring that both of the categories, participating and non-participating, are included in your total sample size based on the below table:

Number of total employees on

employee census Sample size for participating RS

employees Sample size for non-

participating RS employees






4. Actuary Register. Obtain the Actuary Register as of June 30, 2015 directly from the co-op. Note: The co-op must request the Actuary Register directly from NRECA’s internal audit department, send the request to [email protected] and include the co-op’s REA number(s). The Actuary Register contains all employees actively participating in the RS Plan.

5. Personnel Data Verification. For each sampled employee, verify the date of birth, date of hire, date of termination (if applicable), date of rehire (if applicable) and compensation contained on the Employee Census to supporting documentation maintained in the co-op personnel files. Additionally, verify date of birth and date of hire contained on the Actuary Register to Employee Census. Report the employee, supporting documentation used to validate each of the personnel employee data, any differences resulting from this step and obtain management’s explanation for the differences.

6. Eligibility. Obtain all of the co-op’s Summary Plan Descriptions (“SPDs”) and/or Summary of Material Modifications (“SMMs”) as of 6/30/15. Based on the co-op’s eligibility requirements as defined in their SPDs, determine if sampled employees are properly included or excluded from the Plan. Report any improper inclusion/exclusion from the Plan and obtain management’s explanation.

7. November 15, 2014 Salary Verification. For each sampled employee selected, obtain the Actuary Register that details the employee’s November 15, 2014 salary and tie the approved wages to the documentation at the co-op. Supporting documentation should be authorized by someone in the co-op that has that authority. Report the sampled employee, the supporting documentation used, and any differences with management’s explanation for the differences.

8. Hours Worked. For each sampled employee, obtain from the co-op supporting documentation (e.g. payroll system report) that reconciles to the employee census total hours worked. Note any differences resulting from this step, and obtain management’s explanation for the differences.


Group Benefits Program (Medical Plan Only) Procedures



2. Completeness of Employee Census. Obtain a copy of the Employee Census as of 6/30/15 from the co-op. The Employee Census should include: all W-2 employees from the period January 1, 2015 through June 30, 2015, full name, job title, union or nonunion, subgroup number (e.g. 001, 002, etc.), date of birth, date of hire, date of termination (if applicable), date of rehire (if applicable), hours worked, gross wages, authorized pay rate (either salary or hourly rate), and yes or no – participates in NRECA Group Medical Plan,.


3. Sample Selection. Using the Employee Census, sort to segregate the population into two categories: participating employees and non-participating employees. Select a random sample ensuring that both of the categories, participating and non-participating, are included in your total sample size based on the below table:


Sample size for participating employees






4. Obtain the Subscriber Register as of 6/30/15 directly from the co-op. Note: The co-op must request the Subscriber Register directly from NRECA’s internal audit department, send the request to [email protected] and include the co-op’s REA number(s). The Subscriber Register contains all


employees actively participating in the Group Medical Plan.

5. Personnel Data Verification. For each sampled employee, verify the date of birth, date of hire, date of termination (if applicable), date of rehire (if applicable) and compensation contained on the Employee Census to supporting documentation maintained in the co-op personnel files. Additionally, verify date of birth and date of hire contained on the Subscriber Register to Employee Census. Report the type of supporting documentation used to validate employee data, any differences resulting from this step and obtain management’s explanation for the differences. .

6. Eligibility. Obtain all of the co-op’s Summary Plan Descriptions (“SPDs”) and Summary of Material Modifications (“SMMs”) as of 6/30/15. Based on the co-op’s eligibility requirements as defined in their SPDs, determine if sampled employees are properly included or excluded from the Plan. Report any improper inclusion/exclusion from the Plan and obtain management’s explanation. 7. Employee Premiums. For each employee sampled, select one pay period from January through March 2015 and another pay period from April through June 2015, and the approved premium rate sheets from the co-op. Tie employee premiums withheld from their paycheck to the approved premium rates per the rate sheets. Report any differences and obtain management’s explanation. 8. Hours Worked. For each sampled employee, obtain from the co-op supporting documentation (e.g. payroll system report) that reconciles to the employee census total hours worked. Note any differences resulting from this step, and obtain management’s explanation for the differences.


Appendix B: Controls Assessment and Questionnaire


Participant Eligibility Review Controls Assessment and Questionnaire (CAQ)

Instructions: The goal of the controls assessment and questionnaire is to provide an overview of how your co-op performs its operations. Use this form to provide a brief explanation of the processes in place at your co-op (within the “Response” column). Once completed, please provide it to the independent accounting firm (or NRECA, if applicable) that is conducting the agreed-upon procedure (AUP). If you have any questions regarding the Controls Assessment and Questionnaire you can contact an NRECA internal audit member at [email protected]

Co-op Name & REA # Form completed by (Name/Title) In case follow up is needed with

the Controls Assessment and Questionnaire, please provide

your contact information (email and phone number)

NRECA Plans You Participate In: Date Controls Assessment and

Questionnaire Completed:

Section A: General Information About the Control Environment

Question number

Question Response

1

Does your co-op have an annual audit of your financial statements by an independent accounting firm?

If yes, please continue to the next question 1(a) in this section. If no, please skip to question 2 in this section.


Section A: General Information About the Control Environment

1(a)

What type of financial statement audit opinion was received for the co-op’s last fiscal year?

Please select from:

Unqualified/Qualified/Disclaimer/Adverse

1(b)

If the answer to question 1(a) is other than “unqualified,” please provide a brief description of the reason for the modified opinion.

1(c)

Did the auditor's opinion or notes to the financial statements indicate an inability for the co-op to continue as a going concern?

2

Did your co-op receive management le t ter comments or any significant deficiencies or materialweaknesses? If yes, please describe the nature of the control deficiencies.

3

Have there been any significant changes from the prior year in accounting software used or payroll service providers (if applicable)?

4

Have there been any changes in 2015 to key members (e.g., benefits administrator, HR director, GM) involved in managing/administering NRECA-sponsored Plans? If yes, please describe the changes.

5 Does your co-op engage in any leased or contracted employees? If yes, please describe the work nature of those employees


Section B: Information Technology (IT) Systems and Controls & Payroll

Question number

Question Response

1

Provide name of application (software) used for general ledger.

2

Provide name of application (software) used for processing payroll.

3 Provide details on the general ledger and payroll applications by indicating in the response next to the system whether they are:

P - Purchased and not modified M - Purchased and modified in-house D - Developed in-house O - Outsourced

General Ledger:

Payroll:

4

Describe the frequency of payroll.

5

If payroll is outsourced, provide name of the service provider.

6 Are any of your NRECA employee and/or employer benefit contributions calculated outside your payroll system (e.g. manually calculated)? If yes, please explain the process.


Section C: General Control Activities and Monitoring of the Plan(s)

Question number

Question Response

1

When a Plan changes occurs, (e.g. changes in benefits) who at your co-op approves those changes?

2

What reports does your co-op utilize to help monitor your NRECA employee benefits plans?

3

If your co-op participates in NRECA’s 401k Plan, does your co-op regularly reconcile 401k Plan contributions to NRECA records?

Section D: Personnel Policies & Procedures

Question number

Question Response

1

Do all employees have written job descriptions?

2

Newly hired employees. Does each newly hired employee receive a written job offer that includes his/her job description and or job title? Do you inquire to whether the new employee has worked at another co-op?


Section E: Payroll Process, Eligibility/Enrollment, and Contributions

Question number

Question Response

1

Describe the process for submitting and approving timecards.

2

Describe how each payroll period is submitted, approved, and recorded in your general ledger.

3

Describe the process for updating your payroll system when salary changes (e.g. annual merit increases, promotions) become effective.

4

Describe the process for maintaining complete and accurate demographic (e.g. date of hire, date of birth, etc.) and payroll data. Include how demographic information is shared with NRECA.

5

Describe the process for enrolling co-op employees within NRECA’s system. Include the process for both full and part time employees.

6 If your co-op participates in NRECA’s Group medical plan, describe the process for your open enrollment. How do employees enroll and/or re-enroll in benefits? Are employees required to complete new benefit forms?


Section E: Payroll Process, Eligibility/Enrollment, and Contributions

7

Describe the process for when changes are made by employee for their 401(k) deferral elections. For example, does the co-op require a 401(k) deferral form to be used? Do you keep the latest employee’s 401(k) deferral form on file? Does your co-op utilize opt-out forms?

8

What compensation (e.g. base wages, full wages) are used to calculate Plan contributions? Does that definition of compensation agree to the Plan documentation ?

9 Describe your process for distributing SPDs and/or SMMs to employees? Is that the same for onsite and offsite employees?

Section F: Terminations

Question number

Question Response

1

Do you pay lump sum payouts for sick/vacation leave? Are terminated employees allowed to use sick/vacation leave for their last day(s) working?

2

Describe your co-op’s process for ending employee benefits after an employee terminates.

3

If your co-op participates in NRECA’s Group Medical Plan, describe your co-op’s procedures for employee terminations related to extending rights under COBRA.


Auditor’s Section Comments:


Appendix C: Sample Reports and Documents


Sample 401(k) Plan Audit Report

INDEPENDENT ACCOUNTANT’S REPORT ON APPLYING AGREED-UPON PROCEDURES

To the Specified Users of the Report: BDO (Plan Auditor) National Rural Electric Cooperative Association [Cooperative]

NRECA Attention: Internal Audit, 9th Floor 4301 Wilson Blvd, Arlington, VA 22203

[Cooperative] PO Box xxxxx City, State xxxxx

We have performed the agreed-upon procedures provided by the National Rural Electric Cooperative Association (“NRECA”) on [Cooperative] payroll records for the 2015 Plan Year. This engagement was solely to assist [Cooperative] and the NRECA with testing [Cooperative’s] adherence to the NRECA 401(k) Plan, adoption agreement and Summary Plan Descriptions with respect to participant eligibility for the 2015 plan year.

This engagement to perform agreed-upon procedures was performed in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of those specified parties in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose.

Agreed Upon Procedures Performed on the 401(k) Pension Plan

1. Controls Assessment and Questionnaire (CAQ). Obtain the completed CAQ from the co-op. Review the CAQ to ensure that all sections have been completed and explained in detail so that there is a clear understanding of how the co-op’s processes are designed. If any section of the CAQ has not been completed and/or if any section is unclear then inquire with the co-op on why they failed to complete a section and/or what is unclear. Provide the co-op an opportunity to update the CAQ based on any incomplete section(s) and/or updating a process for a better understanding. Report any suggestions for control improvements in the comment’s section of the CAQ. Provide a copy of the CAQ to NRECA. Observation: Cooperative completed all sections of the CAQ, see attachment [X] for the CAQ.

2. Completeness of Employee Census. Obtain a copy of the Employee Census as of 6/30/15 from the


co-op. The Employee Census should include: all W-2 employees from the period January 1, 2015 through June 30, 2015, full name, job title, union or nonunion, subgroup number (e.g. 001, 002, etc.), date of birth, date of hire, date of termination (if applicable), date of rehire (if applicable), hours worked, gross wages, authorized pay rate (either salary or hourly rate), yes or no – participates in 401(k) plan, employee 401k deferrals and employer 401k contributions.

2(a) Reconcile total gross wages per the Employee Census (as of 6/30/15) to any one of these documents: payroll/labor distribution report (as of 6/30/15) or to the co-op’s quarterly IRS Federal Tax Return Form 941 for the first and second quarters of 2015. Report the reconciliation and any differences resulting from this step and obtain management’s explanation for the differences. Attach Employee Census and Reconciliation with report.

2(b) Obtain the NRECA 401(k) Contributions Report from the co-op. Reconcile the 401(k) employee deferrals and employer contributions totals from the Employer Census to the NRECA 401(k) Contribution’s Report. Report the reconciliation and any differences resulting from this step and obtain management’s explanation for the differences. Attach Employee Census and Reconciliation with report. Note: The co-op must request the NRECA 401(k) Contributions Report directly from NRECA’s internal audit department, send the request to [email protected] and include the co-op’s REA number(s).

Observation: We obtained the Co-op’s Employee Census and reconciled total gross wages and 401(k) employee deferrals/employer contributions to supporting documentation provided by the Co-op. The Employee Census appears complete.

3. Sample Selection. Using the Employee Census, sort to segregate the population into two categories participating employees and non-participating employees (contributions should be used to determine participation or non-participation in the plan). Select a random sample ensuring that both of the categories, participating and non-participating, are included in your total sample size based on the below table:


Sample size for participating 401(k) employees






Observation: We judgmentally selected a sample of [five] participating employees and [one] non-participating employee as our sample.

4. Participant Register. Obtain the Participant Register as of 6/30/15 directly from the co-op. Note: The co-op must request the Participant Register directly from NRECA’s internal audit department,


send your request to [email protected] and include your co-op’s REA number(s). The Participant Register contains all employees actively participating in the 401(k) Plan.

Observation: Obtained participant register from NRECA. 5. Personnel Data Verification. For each sampled employee, verify the date of birth, date of hire, date of termination (if applicable), date of rehire (if applicable) and compensation contained on the Employee Census to supporting documentation maintained in the co-op personnel files. Additionally, verify date of birth and date of hire contained on the Participant Register to Employee Census. Report the employee, supporting documentation used to validate each of the personnel employee data, any differences resulting from this step and obtain management’s explanation for the differences. Note: Determine if any non-participating but eligible employees have opted out by reviewing applicable documentation. If no supporting documentation exists please include in your findings. Observation: We verified all sampled employee’s personnel data tested without exceptions and all demographic information agreed to NRECA’s system of record, see Attachment 3.

6. Eligibility. Obtain all of the co-op’s summary plan descriptions (“SPDs”) and/or summary of material modifications (“SMMs”) as of 6/30/15. Based on the co-op’s eligibility requirements as defined in their SPD/SMM, determine if sampled employees are properly included or excluded from the Plan by evaluating each employee’s eligibility. Report any eligible but not included and/or any non-eligible participants in the Plan and obtain management’s explanation for the inclusion/exclusion. Observation: We found that all participating employees were eligible and properly participating and non-participating employees were properly excluded because they were not eligible and/or opted out. See Attachment 3.

7. Pay Rate. For each sampled employee selected, validate the pay rate from the employee census to supporting documentation (example ABC forms) in the employee’s personnel file supporting the employee’s pay rate. Supporting documentation should be signed and authorized by someone in the co-op that has that authority. Report the sampled employee, the pay periods, and any differences resulting from this step and obtain management’s explanation for the differences.

Observation: We found that the pay rate per the payroll register agreed to the supporting documentation approved by the board of directors.

8. Hours Worked. For each sampled employee, obtain from the co-op’s system of record (e.g. payroll system report) supporting documentation that reconciles to the employee census total hours worked. Note any differences resulting from this step, and obtain management’s explanation for the differences.

Observation: We found that the hours worked per the census reconciles to the co-op’s system of record.

9. Employee Contributions. For each employee sampled, select one pay period from January through March 2015 and another pay period from April through June 2015. Obtain the payroll register for each


period selected, the participant register, and sampled employee’s deferral election forms. Recalculate the 401(k) deferrals/contributions and tie recalculated contributions to contributions per the payroll registers and participant register, noting any differences. Obtain management’s explanation for the differences. Attach workpapers indicating sampled employees tested, pay periods, etc. Observation: No exceptions noted.

10. Employer Contributions. For each employee sampled, using the same pay periods selected from step #10, recalculate the 401(k) employer contributions and tie to the co-ops 401k contributions report. Note: Use the formula contained in the Plan Documents for your recalculation. Report any differences resulting from this step and obtain management’s explanation for the differences. Attach your findings

Observation: No exceptions noted.

We were not engaged to and did not conduct an examination, the objective of which would be the expression of an opinion on compliance. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.

This report is intended solely for the information and use of the specified users, as identified above, and is not intended to be and should not be used by anyone other than these specified parties.

CPA FIRM, LLC August 29, 2015


NRECA Participant Eligibility Review Letter of Intent

Please complete this form to request NRECA to conduct the 2015 Participant Eligibility Review for your cooperative. Return the complete form to the [email protected] and please complete all fields.

Once we have this form, we will use it to draft the engagement letter and send the engagement letter back to you for your review and signature. The engagement letter will serve as the agreement of services.

Invoicing and Other Information- Once the Participant Review is completed and the final report(s) issued, we will send you the invoice. We will issue the report in a PDF format, unless told otherwise.

SERVICES REQUESTED

Name 2015 Participant Review

Fixed Cost $1,000 flat fee

Available Testing Months in 2015

July, August, September, October, November, and December (1st - 8th )

Preferred time* to conduct the review (July – December) and week. Please select the entire week. For example, August 18-22 as 1st choice, August 25-29 as 2nd choice, etc.

1st Choice:

2nd Choice:

3rd Choice:

*Every attempt will be made to respect your choices.

NRECA Plans (e.g. 401k, RS, Group) your co-op participates in for 2015

How many employees does your co-op have?

Person(s) Names and Titles Final Report Addressed to (e.g. Board of Directors, Joe Smith, General Manager, etc.)

PARTICIPANT ELIGIBILITY REVIEW PRIMARY CONTACT INFORMATION

Name

Job Title

Email Address

Phone Number

Co-op REA#

Co-op Full Legal Name (Co-op Acronym used)

Co-op Mailing Address


Sample Employee Census [Cooperative] Census ExampleCensus for the period 1/1/15 - 6/30/15

Total TotalSubgroup Date of Date of Participant of 401(k) 401(k) Participant of Participant of

Union or Number Date of Date of Termination Re-Hire Hours Gross Authorized NRECA 401(k) Employee Employer NRECA RS 11/15/2014 NRECA MedicalFull Name Position Non-Union (e.g. 001, 002) Birth Hire (if applicable) (if applicable) Worked Wages Pay Rate * Plan? (Y or N) Deferrals Contributions Plan? (Y or N) Salary Plan? (Y or N)

Tom Hanks Business Administrator Non-Union 001 5/24/1944 8/16/1996 N/A N/A 1040 49,880.04$ 99,760.08$ Yes 1,496.40$ 1,496.40$ Yes 99,760.08$ NoJoe Doe Communications Specialist Non-Union 001 1/21/1956 9/30/2002 N/A N/A 1040 38,889.48$ 77,778.96$ Yes 1,166.68$ 1,166.68$ Yes 77,778.96$ NoMila Kunis IT Support Non-Union 001 2/18/1980 10/21/2009 N/A N/A 1040 36,810.48$ 73,620.96$ Yes 1,104.31$ 1,104.31$ Yes 73,620.96$ NoAshton Kutcher Membership Advisor Non-Union 001 9/6/1979 11/1/2002 N/A N/A 1040 24,771.48$ 49,542.96$ Yes 743.14$ 743.14$ Yes 49,542.96$ NoJason Bateman Lineman Union 001 10/16/1951 3/1/2004 N/A N/A 816 13,160.54$ $23/hr Yes 394.82$ 394.82$ Yes 13,160.54$ NoJason Aldean Apprentice Lineman Union 001 3/23/1953 6/14/2010 N/A N/A 1040 38,263.84$ $16/hr Yes 1,147.92$ 1,147.92$ Yes 38,263.84$ NoKanye West Apprentice Lineman Union 001 4/15/1939 9/10/2007 N/A N/A 0 -$ $16/hr No -$ -$ No -$ NoParis Hilton Lineman Union 002 2/11/1940 8/9/2004 N/A N/A 872 16,364.14$ $23/hr Yes 490.92$ 490.92$ Yes 16,364.14$ NoHulk Hogan Accountant Non-Union 001 9/1/1943 12/9/2005 N/A N/A 808 15,075.04$ 30,150.08$ Yes 452.25$ 452.25$ Yes 30,150.08$ NoBrad Pitt Payroll Accountant Non-Union 001 2/21/1955 11/1/1997 N/A N/A 1040 40,936.56$ 81,873.12$ Yes 1,228.10$ 1,228.10$ Yes 81,873.12$ NoGeorge Clooney Line Forman Union 001 10/23/1959 6/9/2003 N/A N/A 1040 27,777.00$ $26/hr Yes 833.31$ 833.31$ Yes 27,777.00$ NoAngelina Jolie Lineman Union 001 3/12/1990 5/16/2011 N/A N/A 371 2,226.00$ $23/hr Yes 66.78$ 66.78$ Yes 2,226.00$ NoJennifer Anniston Operations Manager Non-Union 002 5/19/1950 10/5/2005 N/A N/A 1040 57,886.52$ 115,773.03$ Yes 1,736.60$ 1,736.60$ Yes 115,773.03$ NoRob Stewart Human Resources Non-Union 001 3/13/1961 3/18/1991 N/A N/A 1040 32,400.00$ 64,800.00$ Yes 972.00$ 972.00$ Yes 64,800.00$ NoJane Doe Assistant Non-Union 001 12/4/1947 12/28/1999 N/A N/A 1040 22,166.40$ 44,332.80$ Yes 664.99$ 664.99$ Yes 44,332.80$ NoPam Anderson Lineman Union 001 3/23/1964 6/6/1994 N/A N/A 1040 25,644.15$ $23/hr Yes 769.32$ 769.32$ Yes 25,644.15$ NoKerry Washington Auditor Non-Union 002 5/22/1953 5/1/2008 N/A N/A 1040 40,432.23$ 80,864.46$ Yes 1,212.97$ 1,212.97$ Yes 80,864.46$ NoDenzel Washington Lineman Union 001 11/17/1951 9/1/1999 N/A N/A 1040 40,936.56$ $23/hr Yes 1,228.10$ 1,228.10$ Yes 40,936.56$ NoJustin Bieber Janitor Non-Union 001 11/26/1935 1/16/2003 N/A N/A 66 425.01$ 850.01$ No -$ -$ No -$ NoJessica Simpson Janitor Non-Union 001 8/7/1935 4/1/1984 N/A N/A 32 562.48$ 1,124.95$ No -$ -$ No -$ NoRob Schneider Office Manager Non-Union 001 1/24/1953 7/18/2006 N/A N/A 1040 28,123.08$ $10/hr Yes 843.69$ 843.69$ Yes 28,123.08$ NoOrlando Bloom Intern Non-Union 001 10/10/1991 6/16/2010 N/A N/A 24 144.00$ 288.00$ No -$ -$ No -$ NoHoward Stern Lineman Union 001 4/24/1953 12/2/1991 N/A N/A 1040 14,289.96$ $23/hr Yes 428.70$ 428.70$ Yes 14,289.96$ NoBarak Obama General Manager Non-Union 001 1/16/1956 4/9/1985 N/A N/A 1040 84,733.56$ 169,467.12$ Yes 2,542.01$ 2,542.01$ Yes 169,467.12$ NoBruce Jenner Lineman Union 001 12/6/1949 9/25/1997 N/A N/A 1040 19,592.00$ 39,184.00$ Yes 587.76$ 587.76$ Yes 39,184.00$ No

671,490.53$ 20,110.77$ 20,110.77$

Reconciliation to Payroll register wages Reconciliation to NRECA 401K Contributions Report

Wages per Census 671,490.53$ Wages per Census 20,110.77$ 20,110.77$ Wages per Payroll Register 671,490.53$ Wages per Cont Rpt 20,110.77$ 20,110.77$ Difference -$ Difference (0.00)$ (0.00)$

Ties without exception

* Authorized pay rate is the agreed based salary or hourly wage.

Ties without exception


Sample 401(k) Eligiblity Workpaper

Eligibility Requirements per SPD:- 3 month waiting period for employee contributions- 1 year waiting period for employer contributions- Not part of excluded class- Custodians- cleaning and daily maintenance/janitorial

(a) Census data (i.e. Date of Birth, Date of Hire and Date of Term) agrees to the information in personnel file.(b) Eligible to participate in the Plan.(c) Ineligible to participate in the Plan.

Participant Data testing

Employee NameDate of Birth

Original Date of

HireDate of Term

# of Hours Classification

Union Yes or

No

Gross Salary as of

6/30/15Hourly

Rate(a) (b) (c)

Participating employeesAvery Dutton 06/21/55 5/3/1982 1106.5 Non-Exempt Yes 39,864.30$ F Y Y N/AChad Smith 02/23/71 7/11/2011 1121.5 Non-Exempt Yes 34,522.96$ F Y Y N/AChris Washer 11/06/53 11/16/1987 1151.5 Non-Exempt Yes 42,653.94$ F Y Y N/ADoug Houser 05/09/50 7/12/1999 1036.0 Non-Exempt No 24,550.14$ F Y Y N/AMila Kunis 01/23/67 10/29/2007 1147.0 Non-Exempt Yes 42,507.57$ F Y Y N/ANon-participating employeesApril May 02/12/53 3/1/1997 390.0 Non-Exempt No 4,286.10$ 10.99$ E Y N/A BJerry Lee 12/01/54 3/1/1997 390.0 Non-Exempt No 4,286.10$ 10.99$ E Y N/A BTim Louse 08/14/61 5/1/2013 339.0 Non-Exempt No 7,253.07$ 21.40$ D Y N/A ADave Proud 08/08/55 6/12/2013 104.0 Non-Exempt No 1,976.00$ 19.00$ C Y N/A A

Tickmark Legend

Y Procedure tested without exception.N/A Not applicable

A Employee did not meet the 3 month waiting period, which is part of the Plan eligibility requirements. Appropriately excluded from the Plan.B Employees are part of the excluded class - custodial cleaning position. Agreed to the position stated on the job application, w/o/e. C Agreed to job offer letter, w/o/e.D Job offer letter states hourly salary is $21.27, however recalculated hourly rate is $21.40. This variance is due to overtime pay.

We obtained the 6/30/15 payroll register and recalculated their hourly rate (less overtime).

Regular wages for 6/30/14 6,934.02$ Regular hours for 6/30/14 326.00$

21.27$ Agrees to offer letter, w/o/e

E Agreed hourly rate to annual wage increase sheet, which was signed by the General Manger/CEO and dated 10/11/14.Wage increases were effective 11/1/14.

F See contribution testing for the pay rate calculation and tie out.


Sample 401(k) Contribution Workpaper

Per SPDEmployer Base Contribution - 3.0% of compensationEmployee Required Contribution for Base Contribution- 2.0% of compensation

Testing Procedures (a) Recalculated Employee and Employer contributions and tied them to employee's elections without exception.(b) Contribution calculated on correct wages per wages in personnel file wage adjustment paper work.

B C CD

Participant NameHourly

Rate401K

Election Salary

401K Contribution

per Co-op

401K Recalculated contribution Variance

Match %

Contribution per Co-op

Recalculated contribution Variance

(a) (b)

Participating employeesAvery Dutton 34.44$ D 15.0% 6,336.96$ 950.54$ 950.54$ (0.00)$ R 3.0% 190.11$ 190.11$ (0.00)$ R Y YChad Smith 29.27$ E 5.0% 5,385.68$ 269.28$ 269.28$ (0.00)$ R 3.0% 161.57$ 161.57$ 0.00$ R Y YChris Washer 34.44$ D 5.0% 6,336.96$ 316.85$ 316.85$ 0.00$ R 3.0% 190.11$ 190.11$ (0.00)$ R Y YDoug Houser 23.64$ D 10% 4,349.76$ 434.98$ 434.98$ 0.00$ R 3.0% 130.49$ 130.49$ 0.00$ R Y YMila Kunis 34.44$ D 3.0% 6,336.96$ 190.11$ 190.11$ 0.00$ R 3.0% 190.11$ 190.11$ (0.00)$ R Y YNon-participating employeesApril May A N/A N/AJerry Lee A N/A N/ATim Louse A N/A N/ADave Proud A N/A N/A

B C CD

Participant NameHourly

Rate401K

Election Salary

401K Contribution

per Co-op

401K Recalculated contribution Variance

Match %

Contribution per Co-op

Recalculated contribution Variance

(a) (b)

Participating employeesAvery Dutton 34.44$ D 15.0% 6,836.96$ 1,025.54$ 1,025.54$ -$ R 3.0% 205.11$ 205.11$ -$ R Y YChad Smith 29.27$ E 5.0% 5,885.68$ 294.28$ 294.28$ -$ R 3.0% 176.57$ 176.57$ -$ R Y YChris Washer 34.44$ D 5.0% 6,836.96$ 341.85$ 341.85$ -$ R 3.0% 205.11$ 205.11$ -$ R Y YDoug Houser 23.64$ D 10% 4,849.76$ 484.98$ 484.98$ -$ R 3.0% 145.49$ 145.49$ -$ R Y YMila Kunis 34.44$ D 3.0% 6,836.96$ 205.11$ 205.11$ -$ R 3.0% 205.11$ 205.11$ -$ R Y YNon-participating employeesApril May A N/A N/AJerry Lee A N/A N/ATim Louse A N/A N/ADave Proud A N/A N/A

Tickmark LegendY Procedure tested without exception.

N/A Not applicable

A Employee was not eligible to participate in the Plan, therefore, there are no Plan contributions to test. See the 401k data testing work paper for additional details.B 401K contribution is calculated using their base pay less overtime, standby pay overtime, double time, and cell phone reimbursements.C Obtained directly from the 5/31/15 and 9/30/15 payroll report.D

E Divided regular pay by regular hours (from the 5/31/15 and 9/30/15 payroll register) to obtain the hourly rate. We then agreed the hourly rate to wage increase memo, which was sent to the employee and signed by his supervisor.Wages were effective 1/11/14

September 30, 2015

Employee contributions Employer contributions

Divided regular pay by regular hours (from the 5/31/15 and 9/30/15 payroll register) to obtain the hourly rate. We then agreed the hourly rate to annual wage increase sheet (effective 11/1/14), which was signed by the

May 31, 2015

Employee contributions Employer contributions


Sample RS Workpaper

Eligibility Requirements per SPD:- 1 year waiting period- 1,000 Hour Rule- Not part of excluded class- Employee of Slope Services or 3C Construction

(a) Census data (i.e. Date of Birth, Date of Hire and Date of Term) agrees to the information in personnel file.(b) Eligible to participate in the Plan.(c) Ineligible to participate in the Plan.(d) Contribution calculated on correct wages per wages in personnel file.(e) Base salary as of November 15th per the actuary census ties to the salary in the personnel file.

D

Employee NameDate Of Birth

Original Date of

HireDate Of Term Classification

Union Yes or

No# of

Hours

Base Salary on Actuarial

Census Hourly Rate(a) (b) (c) (d) (e)

Participating employeesAvery Dutton 06/21/55 5/3/1982 Non-Exempt Yes 1,107 71,635.00$ 34.44$ Y Y N/A N/A YChad Smith 02/23/71 7/11/2011 Non-Exempt Yes 1,122 55,141.00$ 26.51$ Y Y N/A N/A YChris Washer 11/06/53 11/16/1987 Non-Exempt Yes 1,152 71,635.00$ 34.44$ Y Y N/A N/A YDoug Houser 05/09/50 7/12/1999 Non-Exempt No 1,036 49,171.00$ 23.64$ Y Y N/A N/A YMila Kunis 01/23/67 10/29/2007 Non-Exempt Yes 1,147 71,635.00$ 34.44$ Y Y N/A N/A YNon-participating employeesApril May 02/12/53 3/1/1997 Non-Exempt No 390 N/A N/A Y N/A A, C N/A N/AJerry Lee 12/01/54 3/1/1997 Non-Exempt No 390 N/A N/A Y N/A A, C N/A N/ATim Louse 08/14/61 5/1/2013 Non-Exempt No 339 N/A N/A Y N/A A, B N/A N/ADave Proud 08/08/55 6/12/2013 Non-Exempt No 104 N/A N/A Y N/A A, B N/A N/A

Tickmark Legend

Y Procedure tested without exceptionN/A Not applicable

A Employee did not meet the 1,000 Rule, which is part of the Plan eligibility requirements. Appropriately excluded from the Plan.B Employee does not meet the 1 year waiting period requirement. Appropriately excluded from the Plan.C Employees are part of the excluded class - custodial cleaning position. Agreed to the position stated on the job application, w/o/e. D Agreed to the salary adjustment memo, which was signed off by the general manager.


Sample Group Medical Workpaper Cost Sharing AgreementPPO Plan- See SPD in the fieldwork and working papers section on :O driveThe cooperative will pay 100% of the total premiums for single coverageThe cooperative will pay $317.13 of the total premiums for dependent premiums monthly

High Deductible (HD) Plan - See SPD in the fieldwork and working papers section on :O driveThe cooperative will pay 100% of the total premiums for single coverage10% of Dependent in excess of employee rate

Eligibility Requirements per SPD: is not excluded by job classification and anticipates working at least 1,000 hours within their first 12 months of employment; has worked at least 1,000 hours within subsequent calendar years; has worked at another rural electric cooperative within the past 6 months and meets the above criteria.

Testing Procedures(a) Census data (i.e. Date of Birth, Date of Hire and Date of Term) agrees to the information in personnel file.(b) Eligible to participate in the Plan.(c) Ineligible to participate in the Plan.(d) Premium deducted from payroll ties to the Premium Invoices and Rate Sheets.

A

Participant Name Date Of Birth

Original Date of

Hire Classificatio

Year to date hours

Codes 2013 Option

EE medical premium

per payroll registers

EE medical premiums

per approved

rate sheets Difference

ER medical

premium per payroll registers

ER medical

premiums per

approved rate

sheets B Difference

(a) (b) (c) (d)

Participating employeesAvery Dutton 06/21/55 5/3/1982 Non-Exemp 1,107 ppo1 youFamilyS 158.57$ 158.57$ C, [1] (0.00)$ 1,677.91$ 1,677.91$ -$ Y Y N/A YChad Smith 02/23/71 7/11/2011 Non-Exemp 1,122 hdPpo1 youOnly -$ -$ -$ 690.26$ 690.26$ -$ Y Y N/A YChris Washer 11/06/53 11/16/1987 Non-Exemp 1,152 hdPpo1 youFamilyS 36.83$ 36.83$ D, [2] (0.00)$ 1,353.10$ 1,353.10$ -$ Y Y N/A YDoug Houser 05/09/50 7/12/1999 Non-Exemp 1,036 hdPpo1 youFamilyS 36.83$ 36.83$ D, [2] (0.00)$ 1,353.10$ 1,353.10$ -$ Y Y N/A YMila Kunis 01/23/67 10/29/2007 Non-Exemp 1,147 hdPpo1 youFamilyS 36.83$ 36.83$ D, [2] (0.00)$ 1,353.10$ 1,353.10$ -$ Y Y N/A YNon-Participating employeesNote: Plan does not have any non participating employees

Tickmark legend

A Agreed to 6/30/15 payroll reports, w/o/e. All participants were eligible based on the eligibility requirements of the plan. B Obtained from BW library. Total premiums + prescription drug portion less employee portion of premiums.C

Monthly premium per SPD $317.13Divided by 2 (bi-monthly pay) 2

$158.57 [1]D

Total premiums per BW 1,426.75$ Includes EE and ERLess single employee rate 690.26$ agreed to BWExcess of premium 736.49$ % EE premium per SPD 10% See above or see SPDTotal EE monthly premium 73.65$ Divided by 2 (bi-monthly pay) 2

$36.82 [2]

Note Enrollments for selected participants per subscriber register agreed to the enrollment forms without exception.

Y Procedure tested without exceptionN/A Not applicable

15-Jan-14