1. Gather all plan documents including new amendments that were made during the current year.  Your auditor will ask for them, so you might as well pull them together now.

2. Obtain a copy of the plan census from your plan administrator.  Reconcile the total salary on the census to your payroll records.  If it doesn’t tie out, investigate the discrepancy. 

3. Check to see if your fidelity bond is sufficient.  Fidelity bonds should be enough to cover at least 10% of the net plan assets.  Most plans’ net assets are increasing each year, but it is very common to overlook increasing the fidelity bond. 

4. Every plan should have certain individuals who have been charged with governance of the plan.  If they have not had a meeting regarding the plan during the previous year, they should schedule a meeting and keep minutes of the meeting to provide to the auditors.

5. Refer to the plan’s loan policy for restrictions on participant loans.  Scan the loans that are currently outstanding to make sure none of them appear to be non-compliant with the plan’s policy.

6. Refer to the plan document or adoption agreement for the definition of eligible compensation.  Once you have this information, pull up a copy of your most recent payroll, select a few individuals, and check to see if all of their “eligible compensation was included in the calculation for deferrals.

7. Gather your supporting documentation early.  Once the auditors arrive they may require a lot of your time with requests for additional documentation.  Gather the documents that they request as soon as you have their list.  This will take stress off of you during the audit and allow you to help the auditors with new requests.

Any audit can be stressful, but with advance preparation the burden is always lighter. 

Rex Platt

1. You may not be able to pay it back. Take a hard look at whether you anticipate being able to make the required payments. And keep in mind – if you terminate employment with that employer you are required to pay it back in full at the time of termination. So if you do not see a long-term future with the same employer, a loan may not be the way to go.
2. You may be able to get better interest rates elsewhere. While the rates for a loan from your retirement plan are supposed to be market rates, that does not mean that you are getting the best rate. Just like when you take out a car loan or a mortgage, shop around.
3. You are robbing your retirement. I know – ultimately you’re paying yourself back, but there are some proponents of this argument that are vehemently opposed to ever touching your retirement savings. Their biggest argument is “if you can’t afford it now, you’ll never be able to afford it in retirement. Find another way even if that means postponing the purchase until you have the cash saved up outside of your retirement.”

This is just a smattering of things to consider when looking at taking out a loan from your retirement plan. If you have any questions – do not hesitate to contact your tax professional who can help you evaluate your specific situation.

 Katie Thomas, CPA

One of the differences between the old SAS 70 and the new SSAE 16 is that the new standard adds a written management assertion to the report that include the below items:

a) Management’s description of the service organization’s system fairly presents the service organization’s system that was designed and implemented throughout the specified period.
b) The controls related to the control objectives stated in management’s description of the service organization’s system were suitably designed throughout the specified period to achieve those control objectives.
c) The controls related to the control objectives stated in management’s description of the service organization’s system operated effectively throughout the specified period to achieve those control objectives.

Another difference between the old and new standard is that SSAE 16 defines what is required for services performed by a subservice organization depending on whether the carve-out method or the inclusion method is used.  If the carve-out method is used then there should be a description by management that the service organization’s system excludes the control objectives and related controls of the subservice organization(s) and that the service auditor’s procedures do not include the subservice organization(s).  However, if the inclusion method is used then there should be a description by management that the service organization’s system includes the subservices organization’s specified control objectives and related controls and that the service auditor’s procedures does include procedures related to the subservice organization(s).

Kim Lubbers, CPA

However the following limitations should be understood as it relates to IRS determination letters.  First, the letters do not cover any subsequent amendments made to the plan.  Additionally, the letters do not protect the plan from failures to administer the plan in accordance with the plan document. 

To request a determination letter, the plan sponsor must request that the IRS review the plan document and issue a favorable determination letter on the plan’s qualified status. Usually, the plan sponsor works with the third party administrator to submit for this letter. 

If you already have a determination letter, but would like to request a copy, you can receive an original determination letter in writing by mail or by fax from the IRS.  At this time, the IRS does not accept requests via email or telephone. To request an original copy of the determination letter, provide the name of the plan sponsor, plan sponsor’s EIN, plan number, plan name, year the letter was issued (not required, but helpful), and the fax number to which the reprinted letter should be sent.  This information can be faxed to the IRS at (513) 263-4330 or mail at Internal Revenue Service, PO Box 2508, Rm 5-120, Cincinnati, OH 45201 Attn: Manager, EP Correspondence.

Once you have received the original determination letter, be sure to review for any errors.  The process for requesting an error to be corrected is to submit a copy of the letter that needs correction, your fax number (if no fax is given, the corrected letter will be mailed to the address on file), your phone number, and a detailed explanation of the error in the original determination letter.  This information can be submitted to the same address or fax noted above. 

You should expect to receive a copy of your original determination letter after approximately three weeks.  The corrected determination letters should be received within 45 days.  For more information on the various types of determination letters which are given to plans, see our blog post “Determination, Opinion, or Advisory Letters for Retirement Plans”.

Kim Lubbers, CPA

If your plan is selected, an agent will notify you via phone or letter. After the initial contact, a letter is sent with a detailed list of items that you will be required to provide for the examination. At this time, if you choose to have representation (attorney, accountant, enrolled agent or actuary), you must provide the IRS written authorization. Examinations can vary between a complete review of your plan’s operations or they can just focus on specific areas, such as:

• Eligibility and participation
• Vesting
• Discrimination
• Contributions
• Distributions
• Trust activities and documents
• Plan documents
• Returns and filings

The examination will usually begin with you explaining the plan’s administration procedures. The examiner will then perform tests and analysis until it is reasonably certain that the examination requirements have been fulfilled. At the conclusion of fieldwork, the examiner will explain the areas that require attention or corrective actions. A closing letter is sent that details the conclusions of the examination. Any unresolved issues or qualification failures are identified in the closing letter, as well as an explanation of the EP Compliance Resolution System, which usually corrects most qualification failures.

Joe Goodmiller

In this posting, I would like to share with you additional action items the Plan administrator should take immediately before and after the Black-Out period to ensure the proper transfer of participant investments and other balances. 

1) Have all participant funds transferred over from the prior TPA/service provider to the current TPA/service provider? As a plan administrator you will want to obtain a final investment (by dollar) report from the old TPA just prior to transfer. This report is sometimes referred to as a transfer report, and the detail can be as limited to the total dollar amount transferred; to as detailed as “total dollar amount transferred by participant, by fund type, and by contribution type”.  I would recommend you obtain as detailed report as possible.  Next you will want to obtain a report from the new TPA which shows funds transferred-in. Again, the level of detail on this report may vary, and I recommend you obtain the most detailed report.  Finally, you will want to reconcile the total investment dollars per the report received from the old TPA to the investment report received from the new TPA. If the reports are detailed by person, it would be advisable to reconcile a sample of individual’s account transfers for propriety. 

2) Will the new TPA offer the same investments?  If the investments change, how am I comfortable that the old investments are properly mapped to the new investments? When you were making the decision to find a new TPA, the new TPA probably notified you that they did or did not have the same funds offered by your old TPA.  Your new TPA will most likely recommend some of their available funds that most closely resemble the funds of your old TPA. If your new TPA does offer new funds, then you could request a mapping report from the new TPA. The mapping report will show where the old funds will be invested in the new funds offered by the new TPA.  It would be also be advisable to verify that the funds mapped over correctly after the transfer. This verification can be done with the reconciliations in #1 above. 

3) Do I need to be concerned with participants deferral elective deferral %’s after the transition? Generally, if the Plan sponsor is responsible for payroll and calculating and withholding deferrals, then there are no additional reconciliations required when changing TPA’s.  However, if both the old TPA and the new TPA are responsible for participant elective deferrals, you will want to communicate with the TPAs, as to how they will ensure proper transfer of participant elective deferral %s. 

4) What about participant loan balances? How are those transferred from the old TPA to the new TPA? Similar to the reports in #1 above, the old TPA should be able to provide a loan report by person that they transferred over to the new TPA.  Additionally, the new TPA should be able to provide you with a report that shows the loan balances by person, received.  It would be advisable to reconcile a sample of individual’s loan transfers for propriety. 

5) What about educating the participants on how to use the new TPA website, or how to access investment statements? Depending on the services you contracted with your new TPA, the new TPA can generally visit your office(s) and offer educational classes to your participants on how to use the new website and investment statements.  Alternatively, the new TPA can offer you educational material that can subsequently be passed out to participants. 

Victor Fuentes

As you are determining your 401k deferral contribution for the new year be sure to consider contributions that you are making to multiple plans.  In these tough economic times, it is not unheard of for employees to have multiple jobs and therefore the possibility of contributing to multiple benefit plans.  It is also possible that a person can be an employee and self employed and so they too would have the option to make deferral contributions to multiple plans.  Since your employer will not be aware of the contributions that you are making to other plans, it is up to you to make sure that you do not exceed the contribution limits.

According to the IRS’s response to a question posted on its website, a person who was employed by a company that offered a SIMPLE IRA plan and who had a SEP for his own business, was told that he was limited to $16,500 ($17,000 for 2012) in contributions for both plans.

See additional discussion of contribution limits and considerations at the blog “401K Catch-up Contributions” posted November 24, 2009.  The bottom line is to be careful when making your contribution elections and don’t be afraid to ask questions from your plan administrator or your tax professional.  That’s what they’re there for.

Kim Lubbers, CPA

1. As to active participants, it applies if they have the ability to access documents furnished in electronic form from any location where the participant is reasonably expected to perform his or her duties as an employee and with respect to whom access to the employer’s electronic information system is an integral part of those duties (most likely a work terminal)

2. For participants who don’t meet the requirements of option 1, like retirees, former employees or active employees who don’t have regular computer access through their normal job functions, they can receive the information electronically if they “affirmatively consent” to receiving disclosures through electronic media in the manner prescribed by the regulation.  Note that the form of the affirmative consent remains undefined.

So if you choose to disclose fees electronically, make sure you are complying with the safe harbor rules.   If you don’t you may be in violation of the fee disclosure rules.  For further information, refer to www.dol.gov/EBSA/pdf/tr11-03.pdf.

Christine Brueser, CPA

Here is a brief synopsis of what the most common numbers and letters mean.

If you encounter a code other then these, look for it on page 13 of the 1099-R Instructions (http://www.irs.gov/pub/irs-pdf/i1099r.pdf)

Rex Platt

A blackout period is basically a time that participants temporarily lose control of their retirement accounts.  During this period, no changes can be made to investment allocations.  Also, loans and distributions are not allowed.  Participants may be unable to access their accounts online as well. The most common reason for needing a blackout period is due to a change in TPA or service provider.  Blackout periods may also be required in the event of a corporate merger or acquisition.

Blackout rules were actually established as a result of the Sarbanes-Oxley Act of 2002 (SOX), which came about in the wake of the Enron scandal.  The blackout rule was meant to restrict executives from stock activity within retirement plans during certain periods of time.  However, Congress felt there was a need to protect the rights of and educate other types of participants when it came to account restrictions, so those SOX requirements now apply to all defined contribution plans.

Plan sponsors/administrators are required to provide written notice of blackout periods to plan participants that includes the following:

- The reason for the blackout period

- An explanation of all participant rights affected (suspended activities)

- The expected beginning date of the blackout period and length of the blackout period (which is usually given as a range as it can be difficult to estimate specific dates)

- A statement informing participants that they should evaluate their accounts prior to the start of the blackout period

- The contact information of the person designated to answer questions about the blackout period

The notice must be given to participants at least 30 days, but not more than 60 days, in advance.  Obviously, there is an exemption to the 30-day requirement in the event of unforeseeable circumstances that were beyond the control of the plan sponsor/administrator.  Once the notice has been provided, plan sponsors are required to give updated notices in the event that there is a change to the original information (including the reason for any changes.)

Failing to comply with blackout notice requirements can result in civil penalties assessed by the DOL of $100 per participant per day.  So a 500-participant plan that fails to give proper notice of a 14-day blackout period could be looking at potential penalties of $700,000!  I’m sure it goes without saying that in the event a penalty is assessed, it cannot be paid from plan assets.

Jessica Puckett, CPA, CFE