Gov

By Paul R. osBoRne, cPa, cPo, aMlP; W. toDD lehMann cPa, aPM; anD DaviD j. Fites, cFiRs, caMs, aMlP

NANCE
Proper Employee Benefit Plan Documentation

Aa DMiniste RinG eMPloyee BeneFit Plans can present risks for fiduciaries if proper monitoring and documentation are not in place. to help mitigate these risks, a fiduciary should establish and maintain a comprehensive document trail for each employee benefit plan administered and conduct periodic internal audits on these plans.

Employers and other sponsors of employee benefit plans typically use either prototype plans from national and regional plan designers or custom-designed plans. In either case, appropriate documentation—along with a quality internal audit function—is the cornerstone of responsibly managing employee benefit plans.

Making sure that plan documentation is complete and up-to-date ensures that employee benefit plans comply with the latest requirements from the Department of Labor (DOL), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC), and helps protect plan administrators from expensive and embarrassing penalties.

Fiduciaries can help minimize problems associated with improper documentation for employee benefit plans by following four steps:

1 Conduct an annual review of employee benefit plan documentation.

When DOL or IRS agents audit employee benefit plans, they look for complete documentation of plan administration. If documentation is missing, the agents have no evidence that the bank performed its fiduciary responsibilities—even if it did.

The simplest way to ensure that
all documentation is in order is to
conduct an annual review of each rela-
tionship. The most important item in
each file is the plan document, which
is the governing instrument for each
employee benefit account.

2 Monitor year-end testing for accuracy.

In general, fiduciaries must conduct annual tests of employee benefit plans to ensure they comply with nondiscrimination rules.

Many fiduciaries outsource testing to third-party administrators. However, sometimes fiduciaries forget to schedule the tests, may not know how to review the test results for accuracy, or may not keep adequate records.

When DOL or IRS agents come in for an audit, one of the first things they ask to see is compliance testing for the current year and the three preceding years. Fiduciaries should make sure they have evidence that they completed and passed annual compliance testing. They also should include evidence of how they corrected any areas they failed.

Whenever fiduciaries outsource plan recordkeeping, they should obtain a copy of the testing firm’s service auditor’s report, commonly known as an SAS-70 report. This report documents that the firm’s internal control structure was tested.

Some employee benefit plans do not require annual tests for compliance because their design qualifies them as safe-harbor plans with the IRS. In such cases, fiduciaries need to issue safe-harbor notices by the end of November for calendar year plans.