class=”NoSpacing”> A panel at PLANSPONSOR’s 403(b) Summit in Orlando, Florida, sought to answer this question and the general consensus was that plan sponsors must be prepared for significant data-gathering and mining. Robert Lavenberg, Partner, BDO Seidman, LLP, likened collecting the necessary data to completing a jigsaw puzzle in that you know what the final picture should look like, but have to figure out how to get the pieces to match that final outcome.
class=”NoSpacing”> At the outset of this process, plans must know whether they are subject to ERISA, Vince Rainforth, VP Tax Exempt Market at Principal Financial Group, said. For those plan sponsors who still are not sure whether they are an ERISA program, Lavenberg and Rainforth tried to clarify some situations that would result in plans being subject to ERISA. In essence, “once you are involved, you’re an ERISA plan,” said Lavenberg. For example, once a sponsor is approving loans, or hardship withdrawals, or selecting vendors, those would all make the plan subject to ERISA. Rainforth continued that if there are any employer contributions, or if the sponsor is screening and selecting funds, then those would also be ERISA plans.
class=”NoSpacing”> Plan sponsors must be prepared for the audit requirements, Lavenberg said. The rules say sponsors must complete the Form 5500 and financial statements and plans with more than 100 participants also must engage a CPA to audit their financial statements in 2010. Although the audit is not until next year, he cautioned attendees not to put it off because getting the data organized for the auditors and the Form 5500 can be time consuming-and it is data from 2009 and earlier.
class=”NoSpacing”> In fact, Rainforth suggested that plans be proactive about capturing data. He told sponsors they should go back to their vendors and understand how they will be fed data, acknowledging that sponsors might need to be capturing data from providers that are not capturing new money but hold old contributions. Some sponsors have encountered problems getting data from those old vendors, to which James Moyna, Partner at McGladrey & Pullen, LLP, said it is critical that sponsors document what they have done to try to get the information from those old vendors so that effort can be shown to the DoL if that data is not gathered.
class=”NoSpacing”> Although the IRS said that plan sponsors needn’t worry about things that happened before 2005 in its records, that is not true for the Department of Labor (DoL), Lavenberg said. The DoL has not given grandfathering to anything related to auditing. Therefore, he explained, auditors must examine everything related to the plan and make sure it is all materially correct. Plan sponsors should be aware that the auditing of a plan is “a large undertaking” and should be prepared for the cost. Lavenberg told the audience vendors will not pay for the audits, which might start at between $3,000 and $10,000 for an “easy audit,” he said, and reach into the large five-figure numbers for a complicated audit. However, he cautioned the sponsors not to choose an auditor just based on cost.
class=”NoSpacing”> When it comes to the audits, “We have some guidance, we just don’t like it,” said Moyna, who added that the industry still needs more guidance from the DoL. One of the areas in which clarity is still needed surrounds what the DoL will do with unclean audit opinions. Averse or limited scope opinions are usually issued by auditors because not enough information was provided for a clean opinion, Moyna said -something he expects might be common in the 403(b) marketplace. The DoL usually rejects these opinions, he noted, which means an incomplete Form 5500 and large penalties. However, he said the DoL is aware of this issue and he is hopeful the Department will be lenient because it is aware of the large data gathering burden being placed on 403(b) plan sponsors.
Lavenberg, who is active with the AICPA said the association is working to bring the practical issues to light with the DoL and has also made information for plan sponsors about plan audits available on its Web site ( http://ebpaqc.aicpa.org/).
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