401(k) Basics, Part 4 Notes to Financial Statements & Current Topics

401(k) Basics, Part 4

Notes to Financial Statements

& Current Topics

Employee Benefit Plan

Audit Quality Center

AICPA

Handouts for today’s event

You can download presentation slides (in PDF format) and other

handouts by clicking on         in the toolbar at the bottom of your screen

•

Webinar presentation slides

•

Instructions on how to obtain your CPE Certificate

•

EBPAQC Tools and Resources (

Updated

)

•

EBPAQC Tools:

–

Primer, 

ERISA Section 103(a)(3)(C) audits of employee benefit plans

–

Tool, 

Documentation of the auditor’s evaluation of management’s

assessment of an ERISA Section 103(a)(3)(C) audit certification

–

Tool, 

Common Deficiencies in ERISA Section 103(a)(3)(C) audit

certifications

–

Tool

, ERISA EBP financial statement audit special considerations – 2023

Presenters

•

Marilee Lau – Moderator

•

Jennifer Moore – PriceKubecka, PLLC

•

Karolyn Ladas – Grant Thornton

•

Gwen Mazzola – HoganTaylor LLP

Topics

•

ERISA Section 103(a)(3)(C) Audits vs. Non-Section

103(a)(3)(C) Audits

•

Reporting and financial statement disclosures

•

Current topics

–

Including DOL proposed changes, 2023 special considerations,

SECURE 2.0 Act of 2022, Form 5500, pooled employer plans

(PEPs), EBPAQC resources, and more

•

Open Q&A

4

Topics discussed on parts 1, 2, and 3

•

ERISA rules

•

Types of plans & key parties

•

Planning and risk assessment

•

Internal controls

•

Plan document, SSAE 18, and payroll testing

•

Participant data testing

•

Contribution testing

•

Parties in interest and prohibited transactions

•

Benefit payments and notes receivable

•

Investments

•

Concluding an audit

5

ERISA Section 103(a)(3)(C) audits

vs. Non-Section 103(a)(3)(C) audits

Statutory and regulatory basis

Section 103(a)(3)(C) of ERISA

•

Allows plan administrators to instruct the auditor not to perform any

additional procedures with respect to the investment information

prepared and certified by a qualified institution

•

The election is implemented by Title 29 U.S. Code of Federal

Regulations (CFR) Parts 2520.103-8 and 103-12, which outline the

Department of Labor’s (DOL) Rules and Regulations for Reporting

and Disclosure under ERISA

7

ERISA Section 103(a)(3)(C) audit decision tree (from the EBP Guide)

8

Non-Section 103(a)(3)(C) audit

•

The plan auditor should be engaged to perform additional audit

procedures where

–

There are certification issues

–

i.e. assets are not held by a qualified institution, the investment

information is not prepared and certified by a qualified institution, or

the certification is not reliable

–

The plan administrator does not request an ERISA Section 103(a)(3)(c)

audit

–

SEC Form 11-K filers

*Be aware that it is possible that some assets will not be in the custody of the Plan’s

custodian and will fall outside of the certification.

9

DOL Regulations 2520.103

–

Provides sample certification language to be used by the certifying

institution

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Indicates that the certification extends to “ordinary business

records” of the certifying institution

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The certification must be signed by a person authorized to

represent the insurance carrier or bank

10

Who is qualified to certify investment information?

•

“Bank or similar institution or by an insurance carrier that is

regulated, supervised, and subject to periodic examination by a

state or federal agency who acts as trustee or custodian”

–

Bank

–

Trust company (or similar institution)

–

Insurance carrier

–

Agent can certify on behalf of qualified institution

–

Modify report language – ABC as agent for XYZ Trust Company

•

Broker/dealers and investment companies are not qualified to certify

11

C

ertification Stipulations

•

Not every certification is acceptable

–

Un

qualified institutions try to certify

–

Qualified institutions provide certifications based on their

ordinary books and records that may not be fair value

•

Watch for agency relationships

•

Certification of transferred assets and/or change in

trustee/custodians

12

Questions to consider when reviewing a certification

–

Is the ENTIRE period under audit certified?

–

Are all investments covered by the certification?

–

Are notes receivable from participants covered by the certification?

–

Was there a change in trustee/custodian during the year?

–

Changes in custodians/trustees are common but can increase risk if

not managed properly

–

Plan sponsors have a fiduciary responsibility to ensure that the

change is monitored and performed properly

–

Must make sure transfer was complete and accurate at the plan and

the participant level

13

Investments – 

ERISA Section 103(a)(3)(C) audits

vs. Non-Section 103(a)(3)(C) audits

14

Testing Technicalities

•

Limited testing only applies to investment information

–

Does 

not

 extend to participant data, contributions, benefit

payments, required financial statement disclosures, etc.

•

Plan investments not held by a qualifying institution, such as

real estate, should be subjected to non-Section 103(a)(3)(C)

audit procedures.

•

Investment income allocation at the participant level and

investment elections should be subjected to the same audit

procedures as a non-Section 103(a)(3)(C) audit.

15

AU-C section 703 (eff. for periods ending on or after 12/15/21)

SAS 136 + amendments:

–

SAS 138 (materiality)

–

SAS 140 (supplementary information)

–

SAS 141 (effective date)

=

https://us.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledocuments/au-c-00703.pdf

16

AU-C section 703 (SAS 136, as amended)

•

Engagement acceptance – preconditions (.15-.17)

•

Risk assessment and response (.18-.26)

•

Communications with those charged with governance (TCWG) (.27-.28)

•

ERISA Section 103(a)(3)(C) procedures (.29-.35)

•

Written representations (.36)

•

Forming an opinion and form of opinions (.37-.46)

•

Form 5500 filings (.47-.59)

•

Auditor’s reports (.60-.135)

–

Non-Section 103(a)(3)(C) (.60-.84)

–

ERISA Section 103(a)(3)(C) (.98-.126)

•

ERISA required schedules (129-.135)

17

Key Provisions

•

Engagement Acceptance

•

Risk Assessment and Response

•

Performance Procedures

•

Evaluation and Documentation

•

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Management Representations

•

Communications with Those Charged with Governance

•

Reporting

18

Engagement Acceptance - Auditor responsibilities

Follow AU-C section 210 

Terms of Engagement

and

 703

Preconditions: obtain an agreement from management that it 

acknowledges and

understands its responsibility

 for:

•

Maintaining a current plan instrument

•

Administering the plan properly

•

If electing an ERISA Section 103(a)(3)(C) audit

•

Whether that is permissible under the circumstances,

•

Investment information is prepared and certified by a qualified institution

•

Certification meets the requirements of U.S. Code of Federal Regulations (CFR) 2520.103-5

•

Certified investment information is appropriately measured, presented, and disclosed

19

Engagement Acceptance - Auditor responsibilities (Cont.)

•

If electing an ERISA Section 103(a)(3)(C) audit

•

Auditor needs to inquire of management how they determined that the certification is

from a qualified institution

•

Obtain the agreement of management or TCWG to provide a substantially

complete draft of the From 5500 prior to the dating of the auditor’s report

20

Engagement Acceptance - Management’s responsibilities

•

Maintain a current plan document and amendments (collectively, the plan instrument)

•

Administer the plan, which extends to maintaining sufficient participant records

•

Provide the auditor with a substantially complete draft Form 5500 prior to the date of the

auditor’s report

•

Determine whether an ERISA Section 103(a)(3)(C) audit (formerly known as a limited-

scope audit) is appropriate

•

Evaluate the plan’s investment certification and financial information associated with that

certification

•

Determine whether the certified investment information is appropriately measured,

presented, and disclosed

•

Understand how transactions and amounts relating to the certified investment information

are processed and reported

21

Risk Assessment and Response

•

Obtain and read the plan documents, including amendments

•

Consider relevant plan provisions when designing and performing audit procedures

•

Participation and eligibility requirements

•

Types of contributions and distributions allowed

•

Definition of compensation

•

Distribution eligibility rules

•

Reference 

AICPA Technical Questions and Answers (TQA) 6933.13 - .17 

on

relevant plan provisions

22

Performing Procedures

Perform procedures necessary to become satisfied that amounts

received or disbursed were determined in accordance with plan

provisions

•

Rare to not test any relevant plan provisions

•

Evaluate whether prohibited transactions are reported appropriately

in supplemental schedules

•

Tax status – has management performed compliance testing and

corrected any failures?

23

•

Obtain and read a copy of the certification

•

Identify which investment information is certified

•

Perform procedures on investments not covered by the

certification

•

Evaluate management’s assessment of whether the entity issuing

the certification is a qualifying institution under DOL regulations

•

Compare the investment information certified to the plan’s financial

statements

•

If certified investment information is determined to be incomplete or

inaccurate, discuss with management and perform additional

procedures

24

Procedures for Certification in an ERISA

Section 103(a)(3)(C) Audit

•

Determine whether the form and content of the financial statement

disclosures related to the investment information prepared and

certified by the plan’s custodian are in conformity with the

applicable financial reporting framework

•

Perform necessary procedures to become satisfied that any

received or disbursed amounts reported by the custodian were

determined in accordance with the plan provisions 

[applicable for all

audits!]

25

Procedures for Certification in an ERISA

Section 103(a)(3)(C) Audit (Cont.)

Evaluation and Documentation

–

If the auditor determines it is not necessary to test any relevant plan

provisions as part of risk assessment, they are required to

document their considerations

–

When work performed results in items that are not in accordance

with the plan instrument, evaluate whether the items are “reportable

findings”

–

Noncompliance with laws or regulations (AU-C 250)

–

Significant to TCWG (AU-C 260)

–

Internal control deficiencies (AU-C 265)

26

Form 5500 Responsibilities

–

Substantially complete = contains all forms and schedules that

could have a material effect (qualitatively or quantitatively)

–

Review for inconsistencies and determine materiality

–

Audit and Accounting Guide Chapter 13 presents different

situations where information is missing from schedules and

whether the overall form would be substantially complete

–

e.g. Schedule C, 

Service Provider Information

 is missing. If

service provider fees are immaterial, it might not be an issue,

but if they are, auditor would need to further evaluate

27

Management Representations

–

Provided the most current plan instrument

–

Acknowledge responsibility for administering the plan

–

Maintaining sufficient participant records to determine benefits

due or which may become due

–

ERISA Section 103(a)(3)(C) audit

–

Election of this type of audit does not affect management’s

responsibility for the financial statements

–

Responsibility to determine whether the audit is permissible

–

Whether the investment information is prepared and certified by

a qualified institution

–

Certification meets the requirements in 29 CFR 2520.103-5

–

Certified investment information is appropriately measured,

presented, and disclosed

28

Communication with Those Charged with

Governance

–

Communicate reportable findings in writing to those charged with

governance

–

Include:

–

A description of the reportable finding

–

Sufficient information to provide the context

–

Explanation of the potential effects

–

If there are no reportable findings found during the audit, the auditor

should 

not

 issue a written communication stating that

29

Auditor’s Report

–

Express an 

unmodified opinion

 when the ERISA plan

financial statements are presented fairly

–

Two-pronged opinion:

–

Whether the information not covered by

certification is presented fairly

–

Whether the certified information agrees to or is

derived from the certification

30

ERISA Section 103(a)(3)(C) report

31

EBPAQC ERISA Section 103(a)(3)(C) Audits Resource Center

•

Primer, 

ERISA Section 103(a)(3)(C) audits of employee benefit plans

•

Tool, 

Common 

deficiencies in ERISA Section 103(a)(3)(C) audit

certifications

•

Tool, 

Conditions for plan management to elect an ERISA Section

103(a)(3)(C) audit

•

Tool, 

Documentation of the auditor’s evaluation of management’s

assessment of an ERISA Section 103(a)(3)(C) audit certification

•

https://www.aicpa.org/interestareas/employeebenefitplanauditquality/r

esources/accountingandauditingresourcecenters/erisa-section-103-a-

3-c-audits.html

32

Reporting and financial statement

disclosures

Illustrative example: ERISA Section 103(a)(3)(C) Report

versus a Non-Section 103(a)(3)(C) Report

•

Title and addressee

•

Scope and nature of the ERISA Section

103(a)(3)(C) audit

•

Auditor’s opinion

•

Basis for opinion

•

Going concern

•

Key audit matters

•

Responsibilities of management for

the financial statements

•

Auditor’s responsibilities for the

audit of the financial statement

•

ERISA-required supplemental

schedules

•

Other reporting

•

Signature of the auditor and

auditor’s address

•

Date of the auditor’s report

34

Year 1 vs. year 2 unmodified ERISA Section 103(a)(3)(C)

Year 2 – ERISA Section vs. Non-Section 103(a)(3)(C)

Year 1 vs. year 2 ERISA Section 103(a)(3)(C) disclaimer

ERISA Section 103(a)(3)(C) Reports versus

Non-Section 103(a)(3)(C) Reports

•

Differences mainly due to clarification that the ERISA Section 103(a)(3)(C) audit did

not extend to investment information.

•

As with the auditor’s reports under AU-C section 700A, the report must be tailored to

reflect the financial statements for different types of plans, such as defined benefit

plans and health and welfare plans.

38

Illustrative Auditor’s Report – Non-Section

103(a)(3)(C) Audit (EBP Guide para. 14.29)

•

401(k) plan unmodified opinion

•

For an employee benefit plan that is filing Form 11-K with the SEC

•

Omitted information in a schedule required under DOL regulations

•

Omitted schedule required under DOL regulations

•

Qualified report on supplementary information – omitted information

39

Illustrative Auditor’s Report – Non-Section

103(a)(3)(C) Audit (EBP Guide para. 14.29)

(continued)

•

Qualified report – disclosure of material prohibited transaction with

party in interest omitted

•

Disclosure of immaterial prohibited transaction with party in

interest omitted

•

Prohibited transaction with party in interest that is also considered

a related-party transaction

40

Illustrative auditor’s report – ERISA Section

103(a)(3)(C) audit (EBP Guide para. 14.73)

•

Standard ERISA Section 103(a)(3)(C) audit report

•

ERISA Section 103(a)(3)(C) audit in prior year

•

ERISA Section 103(a)(3)(C) audit in current year

•

ERISA Section 103(a)(3)(C) audit in current year, prior year ERISA Section

103(a)(3)(C) audit performed by other auditors

•

Change in trustee

•

Standard ERISA Section 103(a)(3)(C) audit reports with omitted schedule

required under DOL regulations

•

Modified opinion on supplemental schedules – omitted information required

under DOL regulation in an ERISA Section 103(a)(3)(C) audit engagement

41

Common financial statement disclosures

•

Description of the plan

–

General description

–

Eligibility

–

Contributions

–

Participant accounts

–

Vesting

–

Investment options

–

Participant loans

–

Payment of benefits

–

Forfeited accounts

–

Administrative expenses

42

Common financial statement disclosures (cont.)

•

Summary of accounting policies

–

Basis of accounting

–

Use of estimates

–

Investment valuation

–

Payment of benefits

•

Investments

–

Trustee certification, mentioning the certifying entity

–

Fair value disclosures (Level 1, 2, 3 table)

–

Investments using NAV as a practical expedient

–

Investment contracts with insurance companies

–

Risks and uncertainties

•

Parties in interest

•

Plan termination

•

Tax status, including uncertain tax positions

43

Common

 financial statement disclosures (cont.)

•

Prohibited transactions

•

Reconciliation to Form 5500

•

Management statement on subsequent events

44

FinREC recommendations all plans

•

Dividends and Distributions--reinvested

–

Dividends be considered investment income and

shown separately from changes in fair value

–

Capital gain distributions may be considered either

investment income and shown separately from

changes in fair value or included as part of the net

change in fair value

•

Cash Balances

–

Interest bearing cash be shown as an investment

–

Since no cash flow statement is required, there is no

need to classify short term investments as cash

equivalents

45

FinREC recommendations all plans types

•

Separate disclosure of employer contributions relating

to the correction of operational defects or other

nonrecurring items

•

Additional disclosures and discussion

–

Benefits paid

–

Other income

–

Other employer contributions

–

Expense offset arrangements

–

Transfers of assets to or from other plans

–

Frozen or merged plans

–

Full or partial terminations

–

Changes in service providers

46

FinREC recommendations defined contribution plans

•

Excess contributions/corrective contributions

–

Amounts may be netted against contributions received in

the statement of changes with additional footnote disclosure

–

Include refund or payment as a payable to participant

•

Contributions receivable

–

Additional guidance added to include the factors that are to

be reviewed in determining whether a receivable should be

recognized and the relationship between employer and

employees as compared to a DB plan

•

Participant loans classified as a note receivable with

additional disclosures for valuation, interest income,

etc.

47

FinREC recommendations defined contribution plans

•

Forfeitures

–

Added more discussion about forfeitures and use of

forfeitures with recommended disclosures

•

Rollover Contributions

–

Significant rollovers be shown as a separate line item on

the statement of changes in net assets available for benefits

–

Discussion as to when a rollover is really a plan transfer

•

Employee Stock Ownership Plans

–

How a leveraged ESOP plan works

–

ESOP financial statements for leveraged ESOPs—FinREC

recommends columnar format

48

Form 11-K Filings

•

Do not file PCAOB auditor’s report with the Form 5500

•

Preparing the financial statements may violate auditor’s

independence

–

Auditors should not provide typing and word processing

services nor financial statement templates that are not

publicly available to audit clients (See Dec 2014 EBPAQC

E-Alert)

•

Archived annual webinar on 11-K Audits on website

–

https://bcove.video/3G94I9p

49

Current topics and resources

Current topics

•

SECURE 2.0 Act of 2022

•

DOL proposed changes

•

AICPA EBP AQC Tools and Primers

•

Form 5500

•

Pooled employer plans (PEPs)

•

New auditing standards

51

SECURE 2.0 Act of 2022

SECURE 2.0 Act of 2022

•

Contains 

sweeping changes relating to qualified retirement plans

aimed at

–

Increasing retirement savings

–

Simplifying and clarifying retirement plan rules

–

Other purposes

•

Plan amendments generally need not be made until the end of the

first plan year beginning on or after January 1, 2025

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Passed by Congress

on December 23,

2022.

Signed into law by

President Biden on

December 29, 2022.

53

Auto enrollment/auto-escalation

SECURE 2.0

•

New 401(k) and 403(b) plans must automatically enroll participants

when they become eligible (employees may opt out of coverage)

–

Initial rate of at least 3% but not more than 10%

–

Each year thereafter amount is increased by 1% until it reaches

at least 10% but not more than 15%

•

Exemptions:

–

All existing 401(k) and 403(b) plans in effect on the date of

enactment

–

Small businesses with 10 or fewer employees

–

New businesses (i.e., those that have been in business for less

than three years)

–

Church plans

–

Governmental plans

Section 101

E

ffective for plan years

beginning after

December 31, 2024.

54

Required minimum distributions (RMD)

SECURE 2.0

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Increased to Age 73 effective January 1, 2023

•

Increase to Age 75 effective January 1, 2033

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Penalty for failing to take an RMD reduced from 50% to 25%

•

If correction is made within two years the tax is further reduced to 10%

•

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Section 107- RMDs-–

Effective for

distributions made

after December 31,

2022, for individuals

who attain age 72 after

that date.

55

Catch-up contributions

SECURE 2.0

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•

Increased Limit on Catch-Up Contributions for Individuals age 60 to 63

•

Greater of $10,000 or 150% of the regular catch-up amounts for 2024

•

Adjusted annually for inflation

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•

Catch-Up Contributions must be made on a Roth basis

•

Does not apply to employees with compensation of $145,000 or less (as

indexed)

Section 109-Catch-up

contributions--

Effective for taxable

years beginning after

December 31, 2024.

56

Roth Matching and Nonelective Contributions

SECURE 2.0

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Employer matching or nonelective contributions may be made on a Roth basis

57

Long-term, part-time employees

SECURE 2.0

One significant change to provisions of SECURE Act

requiring 401(k) plans to offer participation to long-term

part-time workers

Long-term part-time worker now defined as employee

completing TWO consecutive years of service with at least

500 hours worked (instead of THREE years)

Requirement extended to 403(b) plans

Still awaiting Treasury/IRS regulations on original

provisions

Section 125

E

ffective for plan

years beginning after

December 31, 2024.

The clarification is

effective as if included

in the 2019 SECURE

Act, so effective

beginning after

December 31, 2020.

58

Student loan payments

SECURE 2.0

Employers may make matching contributions under a 401(k) or 403(b)

plan on employees’ qualified student loan payments 

–

“Qualified student loan payment” is defined as any indebtedness

incurred by the employee solely to pay qualified higher education

expenses of the employee

Employees who receive such matching contributions are required to

certify annually 

to the employer that such payment has been made

on such loan, and 

employer may rely on the employee certification of

payment

Note

: For purposes of the nondiscrimination rules, student loan

payments will 

not

 be treated as plan contributions, and a plan may

separately test the employees who receive matching contributions on

student loan payments in determining whether it satisfies the ADP

testing requirements for a given plan year

Section 110

E

ffective for plan

years beginning after

December 31, 2023.

59

Missing participant “Lost and Found”

SECURE 2.0

Department of Labor (DOL) will have a database that will allow individuals who

may have funds remaining in a retirement plan to search for current contact

information for plan administrators

Envisions plans transmitting information related to missing participants

including those who have been paid out in the form of distributions to IRAs

Time and form of information transmittal to be determined by regulations

Section 110

Effective no later than

December 29, 2024

60

Withdrawals for certain emergency expenses

SECURE 2.0

•

Exception from the 10% tax on certain early distributions:

–

Distributions must be 

used for emergency expenses which are

unforeseeable or immediate family needs relating to personal or family

emergency expense

–

One distribution, not to exceed $1,000, is permitted each year

–

Participant

 can repay the distribution within three years

–

N

o further emergency distributions are permissible during the three-year

repayment period, unless repayment occurs

–

Plan administrators generally may rely upon a participant’s self-

certification; however, the IRS is authorized to issue guidance to address

situations in which a plan administrator has actual knowledge to the

contrary or there are employee misrepresentations

Section 115

Effective for

distributions made

after December 31,

2023.

61

Increased dollar threshold for mandatory distributions

SECURE 2.0

Currently a retirement plan sponsor can distribute a terminated participant’s

account, without the participant’s consent, if their balance does not exceed

$5,000

•

SECURE Act 2.0 pushes this to $7,000

•

E

f

f

e

c

t

i

v

e

f

o

r

d

i

s

t

r

i

b

u

t

i

o

n

s

o

n

o

r

a

f

t

e

r

1

/

1

/

2

4

Section 304

Effective for

distributions made

after December 31,

2023.

62

Recovery of retirement plan overpayments

SECURE 2.0

Gives retirement plan fiduciaries discretion to not recoup

overpayments mistakenly made to retirees

•

Fiduciary relief for failure to make the plan whole

•

For ERISA-covered plans where a plan’s fiduciaries choose to

recoup overpayments, limitations and safeguards apply

Section 301

Effective upon

enactment with

certain retroactive

relief for prior good

faith interpretations of

existing guidance.

63

Corrections

SECURE 2.0

•

IRS 

Employee Plans Compliance Resolution System (EPCRS) 

expanded

to:

–

Allow more types of errors to be rectified internally through self-correction

–

Example - allows for the correction of many plan-loan errors through

the self-correction process

•

G

race period allowed to correct, without penalty, reasonable errors in

administering 

automatic enrollment and automatic escalation features

occurring after December 31, 2023

–

Errors must be corrected within 9½ months after the end of the plan year

in which the mistakes were made

Section 305- EPCRS

expansion-- Effective

upon enactment.

Section 350-

Automatic features--

Effective for any

errors after December

31, 2023.

64

403(b) plans

SECURE 2.0

•

C

onforms current 

hardship distribution 

rules for 401(k) plans to

403(b) plans

•

Long-term, part-time employee 

provision extended to 403(b) plans

subject to ERISA

•

403(b) plans will now be allowed to invest in 

collective investment

trusts (CIT)

•

4

03(b) plans can join 

a multiple employer plan (MEP) or pooled

employer plan (PEP)

Section 602-

Hardships--

Effective for plan years

beginning after

December 31, 2023.

Section 125- LT/PT

employees-- Effective

for plan years

beginning after

December 31, 2024.

Section 128- CITs--

Effective for amounts

invested after date of

enactment.

Section 106-

MEPS/PEPS--

Effective for plan years

beginning after

December 31, 2022.

65

Annual audits for a group of plans

SECURE 2.0

•

C

larifies that 

each plan 

filing under a group of plans (added by the

SECURE Act) is required to submit audited financial statements if it

has 100 participants or more.

•

Plans with fewer than 100 participants that are included in a group

of plans are not required to submit audited financial statements.

Section 345

Effective upon

enactment.

66

SECURE 2.0 …things to think about

•

Understand the sweeping changes 

impacting qualified retirement

plans

•

Changes have various effective dates

•

Will require significant adjustments for employers, participants and

their-party administrators

•

Extensive IRS and DOL guidance will be needed

•

May result in heavier administrative burdens and increased costs

for employers

•

Participants will need education on updates

•

Coordination of updates with payroll providers and third-party

administrators will be needed

67

DOL proposed changes

DOL proposed changes

VFCP self-correction

•

DOL proposed adding a self-correction component to its Voluntary

Fiduciary Correction Program (VFCP)

•

Expands types of transactions covered under VFCP and simplifies

the administrative tasks necessary to receive relief

•

Conditions for self correction of delinquent contributions and loan

repayments

–

Correction to take place within 180 days from the date of

withholding or receipt

–

Lost earnings can not exceed $1,000

•

Self-correcting plans would be required to

–

Use program’s online calculator to determine lost earnings

–

Use online portal to file a notice of the correction with DOL

–

Complete and retain the self-correction retention record checklist

Proposal released

in November

2022.

Written comments

due on or before

January 20, 2023.

DOL will notify the

public of the

availability of the

amended and

restated VFCP in

a subsequent

Federal Register

document.

69

DOL proposed changes (continued)

Prohibited transaction exemption

•

DOL also proposed a separate rule that would amend 

P

rohibited

Transaction 

C

lass 

E

xemption (PTE) 2002-51

–

T

o allow an employer to obtain excise tax relief for self-corrected

late contributions meeting certain conditions

•

S

elf-correcting plans would notify the DOL that a correction has

taken place via an online portal (eliminating the need for a formal

application and no-action letter)

•

Would eliminate a cap on the total number of similar voluntary

corrections the agency will process for a single plan

–

Employer-sponsored plans currently only allowed to apply for one

such voluntary correction every three years

70

AICPA EBPAQC tools and primers

Special considerations – 2023

New

•

ERISA employee benefit plan financial statement audit special

considerations – 2023

–

Provides overview of key considerations for December 31, 2022

year-end audits:

–

Implementation of SAS No. 142, 

Audit Evidence

–

Legislative and regulatory developments (DOL and IRS guidance,

SECURE 2.0 Act of 2022)

–

Additional audit considerations related to the current economic and

business environment

–

Pooled employer plans (PEPs)

–

Financial statement disclosures

72

https://www.aicpa-

cima.com/resources/download/ebp

-audit-special-considerations

Examples of written auditor communications for EBP audits

Revised tool

•

The non-authoritative tool is intended to assist in preparing written

communications of matters identified during the financial statement audit to

their employee benefit plan clients.

•

It contains example comments taken from actual communications prepared

by practitioners that may be useful in preparing required communications of

internal control related matters and reportable findings identified in your

audits, and observations arising from the audit that are significant and

relevant to those charged with governance in their oversight of the financial

reporting process.

•

It includes considerations auditors should make in editing the examples for

specific facts and circumstances based on the auditor’s professional

judgment and requirements in the relevant professional standards.

73

https://www.aicpa-

cima.com/resources/download/examples

-of-internal-control-communications-for-

erisa-plan-audits

Audit evidence tools

New

•

Primer, 

Audit evidence in an employee benefit plan

–

Developed to assist in understanding the types of information that may be available to EBP

auditors. Provides a basic overview of AU-C section 500, addressing terms and definitions; forms

and sources of information in an EBP audit; evaluating audit evidence, including its relevance

and reliability, and the controls over information to be used as evidence; audit evidence by EBP

audit area; and references to other helpful resources.

•

Tool, 

Common sources of audit evidence used in testing investment

valuations

–

Developed to assist in identifying potential sources of audit evidence to be considered when

testing the valuation of investments. The matrix provides general descriptions of common

investments in EBPs and lists sources of audit evidence frequently used to support the

investment balances, presentation, and financial statement disclosures. Includes helpful tips to

better understand certain investments and issues that may affect audit considerations, and

provides a general description of the appropriate classification on Form 5500 and other Form

5500 reporting requirements.

74

https://www.aicpa-

cima.com/resources/download/audit

-evidence-in-an-employee-benefit-

plan-primer

https://www.aicpa-

cima.com/resources/download/co

mmon-sources-of-audit-evidence-

used-in-testing-investment-

valuations

Form 5500 tool

Updated based on the 2022 Form 5500



an overview of Form 5500 schedules, 

including tips

and questions to

consider in understanding the information and how it may relate to

the audited financial statements;



information and characteristics of Form 5500 reporting for auditors

who are new to auditing ERISA plans.

75

https://www.aicpa-

cima.com/resources/download/form

-5500-considerations-for-auditors

D

e

f

i

n

i

t

i

o

n

o

f

c

o

m

p

e

n

s

a

t

i

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n

i

n

a

n

e

m

p

l

o

y

e

e

b

e

n

e

f

i

t

p

l

a

n

New types of compensation

•

New types of pay, rewards, and benefits emerging (stipends for

home internet, employee recognition, stay bonuses, gift cards,

paying student loans, pet insurance, etc.)

•

Employers may treat as a fringe benefit.

•

Need to understand the definition of compensation within the plan

document

•

EBPAQC Primer, 

Definition of compensation in an employee

benefit plan

76

Form 5500

SCHEDULE H – ACCOUNTANT’S OPINION



With SAS 136, ERISA Section 103(a)(3)(C) audits (formerly called limited scope audits) are no

longer disclaimer opinions in form under GAAS and in the Form 5500 Accountant’s Opinion

section

Part III: Accountant’s Opinion

section has been updated for

SAS 136

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)

78

2023 Form 5500 Updates



A consolidated Form 5500 reporting option for 

certain groups of

defined contribution retirement plans



Improved reporting by pooled employer plans and other multiple

employer plans, including a 

new Schedule MEP



A 

change in the participant-counting methodology 

for

determining eligibility for simplified reporting alternatives available

to “small plans”

79

Reference

EBPAQC Alert No.

504 for relevant

links related to the

changes to the

2023 Form 5500.

2023 Form 5500 Updates (continued)



Additional breakout categories added to Schedule H breakout of

“Administrative Expenses Paid by the Plan,” including “Independent

Qualified Public Accountant (IQPA) fees.”



Changes to Schedule R related to financial and funding reporting

by PBGC-covered defined benefit plans.



The addition of selected Internal Revenue Code compliance

questions to improve tax oversight and compliance of tax-qualified

retirement plans.



Technical and conforming changes as part of the annual rollover of

forms and instructions.

80

Reference

EBPAQC Alert No.

504 for relevant

links related to the

changes to the

2023 Form 5500.

Pooled employer plans (PEPs)

Pooled employer plans (PEPs)

•

Type of multiple employer plan (MEP)

•

Effective January 1, 2021

•

DOL EBSA issued registration requirements for PPPs

•

Auditor independence considerations

–

“Affiliate” definition in AICPA Professional Ethic Staff FAQs

: 

Application

of the independence rules to affiliates of employee benefit plans

•

No model plan yet

•

SECURE 2.0 Act amends ERISA to require PEPs to designate a

named fiduciary (other than an employer in the plan) to be

responsible for collecting plan contributions and to implement

collection procedures.

Audit and reporting

requirements

considerations summarized

in EBPAQC 

Pooled

employer plans (PEPs)

special considerations

82

https://www.aicpa-

cima.com/resources/download/pooled

-employer-plans-peps-special-

considerations

New standards

New auditing standards

84

New auditing standard – SAS No. 142, 

Audit Evidence

•

Effective for periods ending on or after December 15, 2022

•

Supersedes AU-C section 500, 

Audit Evidence 

and amends various

other sections of SAS 122, 

Statements on Auditing Standards:

Clarification and Recodification

, as amended.

•

Addresses the evolving nature of transacting business as well as the

evolution of audit services.

–

use of emerging technologies and techniques by both preparers and

auditors,

–

application of professional skepticism,

–

expanding use of external information sources to provide audit evidence,

and

–

more broadly, the relevance and reliability of audit evidence.

85

SAS No. 142, 

Audit Evidence – 

Key changes

•

Expanded guidance on evaluating whether sufficient appropriate audit

evidence has been obtained.

–

more broadly focused on considering the attributes of information to be

used as audit evidence.

–

attributes of reliable information include its accuracy,  completeness,

authenticity, and susceptibility to bias

•

Automated tools and techniques

•

Professional skepticism

•

Management specialists

86

Audit evidence

•

Information may be obtained directly or derived individually or in

combination from different sources:

–

Management

–

External

–

Auditor

•

Evaluating audit evidence

–

Relevance

–

R

eliability 

–

Accuracy

–

C

ompleteness

•

Controls over audit evidence

•

New EBPAQC audit evidence resources

87

Identifying and evaluating information to be used as audit evidence

•

The types of information typically available (personnel file, payroll

register, etc.).

•

The forms of information (i.e., oral, visual, paper, electronic)

typically available.

•

The source of the information (plan sponsor, third-party, etc.).

•

The sufficiency and appropriateness (relevance and reliability) of

the audit evidence.

•

Whether additional procedures need to be considered to

substantiate the appropriateness (relevance and reliability) of

electronic audit evidence

*Example of additional

procedures to

substantiate

appropriateness:

If a SOC 1 report does

not address certain

controls that are

relevant or significant

to the plan’s

operations, the auditor

may need to consider

contacting the service

organization to obtain

specific information or

visit the service

organization and

perform such

procedures.

88

SAS No. 143, 

Auditing accounting estimates and

related disclosures

•

Why the change

•

Converge U.S. GAAS with ISAs

•

To help auditors appropriately address increasingly complex scenarios that

involve accounting estimates

•

What is changing

•

Enhanced risk assessment that is more specific to estimates

•

Audit procedures need to be responsive to the reasons for the assessed risk

of material misstatement

•

Other key concepts

•

Application of scalability

•

Professional skepticism

SAS No. 144, 

Use of specialists and use of

pricing information

•

What is changing

•

AU-C Section 501

, 

 Audit Evidence – Specific Considerations for

Selected Items - 

Enhances guidance about evaluating the work of

management’s specialist

•

AU-C Section 540, 

Auditing Estimates and Related Disclosures -

New Appendix, “Use of Pricing Information From Third Parties as

Audit Evidence”

•

AU-C Section 620, 

Using the Work of an Auditor’s Specialist -

Enhances guidance about evaluating the work of the auditor’s

specialist

SAS No. 145, 

Understanding the Entity and its

Environment and Assessing the Risks of Material

Misstatement

O

b

j

e

c

t

i

v

e

:

T

o

e

n

h

a

n

c

e

t

h

e

a

u

d

i

t

o

r

’

s

r

i

s

k

a

s

s

e

s

s

m

e

n

t

t

h

r

o

u

g

h

f

o

c

u

s

i

n

g

o

n

:

​

•

Understanding the entity’s system of internal control

​

•

Addressing risks arising from an entity’s use of IT 

​

•

Determining risks of material misstatement,

including significant risks

​

•

Consideration of the economic, technological, and

regulatory aspects of the markets and environment

​

SAS 145 (continued)

E

n

h

a

n

c

e

s

:

–

requirements and guidance related to obtaining an understanding of

the entity’s system of internal control and assessing control risk

–

guidance addressing the economic, technological, and regulatory

aspects of the markets and environment of entities and audit firms

R

e

v

i

s

e

s

:

–

definition of significant risk

–

requirements to evaluate the design and to determine whether certain

controls have been implemented

–

requirements relating to audit documentation

SAS 145 (continued)

N

e

w

r

e

q

u

i

r

e

m

e

n

t

s

:

–

separately assess inherent risk and control risk

–

assess control risk at maximum if auditor does not plan to test operating

effectiveness of controls (i.e., assessment of risk of material misstatement is the

same as assessment of inherent risk)

–

“stand-back” requirement intended to drive an evaluation of the completeness

of the auditor’s identification of significant classes of transactions, account

balances, and disclosures

•

N

e

w

g

u

i

d

a

n

c

e

–

scalability

–

maintaining professional skepticism

In the future

#AICPAebp

In the future (continued)

Questions & answer session

CPE certificate

Don’t forget to download your CPE certificate!

Click on

Now!

We welcome your feedback!

Please complete the online evaluation

Thank you

Appendix:

EBPAQC and AICPA resources

EBP A&A Guide

EBP A&A Guide (August 2022 edition)

Strongly recommend

reading the guide!

Available at aicpa.org:

Online version

(Online Professional

Library)

E-book version

Print version

102

EBPAQC resources

New AICPA website

•

www.aicpa.org

On the AICPA

homepage….

Use AICPA log in

Set up personal

profile and

preferences

Save items

(resources and

articles) and set up

shortcuts (EBPAQC)

View section and

firm memberships,

credentials

104

New EBPAQC website

Bookmark the page

https://www.aicpa.org/topic

/employee-benefit-plans

Find tools and

resources by type or

topic

At aicpa.org/EBPAQC

105

EBPAQC resources and tools

106

EBPAQC alerts

•

Periodic news, developments, webcast registration

107

Archived EBPAQC webcasts

•

AU-C section 703 lightning round Q & A

•

ERISA section 103(a)(3)(C) audits: part 1

•

ERISA section 103(a)(3)(C) audits: part 2

•

Multiemployer plan audits

•

Multiple employer plan audits

•

Using SOC 1 reports in EBP audits

•

Current issues in defined benefit audits

•

Unique defined benefit plan issues – advanced

•

Actuarial reports in DB plan audits

•

Health and welfare plans: part 1 – Basics and audit planning

•

Health and welfare plans: part 2 – Audit and reporting

•

Health and welfare plan advanced audit issues

•

EBP investments: part 1 – Common EBP investments

•

EBP investments: part 2 – Auditing investments

•

Common plan operational errors

•

Initial EBP audits

No CPE available for

listening to an

archived event

108

https://www.aicpa-

cima.com/category/resources/empl

oyee-benefit-plans?type=video

Plan advisories

•

SAS 136: An overview for plan management

•

ERISA section 103(a)(3)(C) audits

•

Importance of hiring a quality auditor

•

Internal controls and safeguarding plan assets

•

Partial plan terminations

•

Understanding auditor communications

•

The importance of retaining and protecting employee

benefit plan records

•

Monitoring of recordkeeping and reporting

•

Valuing and reporting plan investments

109

https://www.aicpa-

cima.com/category/resources/employ

ee-benefit-plans?type=advisory

Primers

•

ERISA Section 103(a)(3)(C) audits of employee benefit plans

•

Timely remittance of employee contributions in DC retirement plans

•

Definition of compensation in an EBP

•

Plan expenses

•

Parties in interest and prohibited transactions

•

Tax and compliance issues for 401(k) plans

•

403(b) plans

•

Multiemployer employee benefit plans

•

MEPs and MEWAs

•

Health and welfare employee benefit plans

•

Employee stock ownership plans (ESOPs)

•

Cash balance plans

•

Actuarial methods in defined benefit pension plans

•

Master trusts in employee benefit plans

•

Insurance company products offered to EBPs

•

Plan investments in bank collective funds

•

Stable value funds and investment contracts

•

Alternative investments in employee benefit plans

110

https://www.aicpa-

cima.com/category/resources/empl

oyee-benefit-plans?type=primer

Audit engagement tools and aids

•

Form 5500 considerations for auditors

•

Plan Sponsor tool – Analyzing timeliness of remittances

•

Peer review findings in employee benefit plan audits

•

ERISA employee benefit plan financial statement audit special considerations

•

DC plan audit information request tracker (Excel)

•

Identification of Parties In Interest and Related Parties

•

Documentation of Procedures Performed to Identify Related Parties and Related Party Transactions,

and Parties in Interest and Party in Interest Transactions

•

Documentation of the Consideration of Potential Prohibited Transactions in an EBP Financial Statement

Audit

•

EBP Audit Internal Meeting Planning Tool

•

EBP Audit Client Meeting Planning Tool

•

Plan Governing Documents, Agreements, and Correspondence Index

•

Summary of Key Plan Document Provisions Relevant to a Defined Contribution Retirement Plan Audit

•

Documentation of Use of a Type 2 Service Auditor’s Report in an Audit of an Employee Benefit Plan’s

Financial Statements

•

Internal Control Communication Examples

•

Documentation of the Auditor’s Evaluation of Management’s Assessment of an ERISA Section

103(a)(3)(C) Audit Certification

•

Common EBP Audit Deficiencies

•

Common Deficiencies in ERISA Section 103(a)(3)(C) Audit Certifications

111

https://www.aicpa-

cima.com/category/resources/em

ployee-benefit-plans?type=tool

Sharing access to the Center website with staff

•

When your firm joined the Center, you received a welcome email

that contained your firm’s 

unique activation link

.

•

You will need this link both to activate your account and to share

access with others.

•

There is 

no limit 

to the number of individuals in your firm to whom

you grant access.

•

If you no longer have that email or unique firm URL, the firm’s

Designated Partner can contact the Center at 

EBPAQC@aicpa.org

.

112

•

Primer, ERISA Section 103(a)(3)(C) audits of employee benefit

plans

•

Tool, Common deficiencies in ERISA Section 103(a)(3)(C) audit

certifications

•

Tool, Conditions for plan management to elect an ERISA Section

103(a)(3)(C) audit

•

Tool, Documentation of the auditor’s evaluation of management’s

assessment of an ERISA Section 103(a)(3)(C) audit certification

ERISA Section 103(a)(3)(C) audits resource center

113

https://www.aicpa-

cima.com/resources/download/erisa

-section-103-a-3-c-audits

EBP financial statement search tools

EBP financial statement search tools

•

DOL EBSA's expanded Form 5500 search tool

–

search for filings using new filters including plan type, plan asset

value, number of participants, employer plan types, business codes,

form years, and locations (does not have text search)

–

Click here

for the EBSA Form 5500 Search.

•

SEC Form 11-K Employee Stock Plan Annual Report database

–

contains annual report filings of employee stock plans

–

Click here

for the SEC Form 11-K Employee Stock Plan Annual

Report database.

115