Compliance April 17, 2014

Plan Financial Audits May Uncover 'Red Flags'

When performing annual retirement plan financial audits, plan sponsors and their auditors should look for potential “red flags” for regulators.
Reported by

James E. Merklin, partner in charge of Assurance Services for the CPA firm of Bober Markey Fedorovich in Aktron-Ohio, explains, “Every year since ERISA was passed in 1974, employer-sponsored benefit plans, including retirement plans, with 100 or more participants have been required to undergo an annual audit of the plan’s financial statements by an independent auditor. The results of this audit are then included with the submission of that company’s Form 5500 paperwork to the federal government.” ERISA is the Employee Retirement Income Security Act.

Merklin tells PLANADVISER, “The auditors are looking to see if the statements are in line with generally accepted accounting principles, or GAAP. The auditors are looking to see how many types of transactions are present in the statements and how many they have to sample to reach a reasonable conclusion about the plan’s GAAP compliance. In this respect, the audit focuses on numbers and on making sure that disclosures are made properly.”

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Merklin says auditors are also looking to see whether or not the plan still qualifies for tax-exempt status. “One purpose of the audit is to make it less likely that the Department of Labor or the Internal Revenue Service will come along and say that your plan or company owes taxes,” he says.

But GAAP compliance and maintaining tax-exempt status are not the only things auditors should be looking for, added Merklin. “There may be some things that the plan is doing wrong, and that can eventually become a problem for both the plan sponsor and the plan. Plan sponsors shouldn’t be afraid to have auditors, as well as legal counsel, take a deep dive into the plan documents and examine whether areas such as contributions are being carried out properly. Plan sponsors want to be the first ones to be aware of any issues, before the DOL or IRS spot them.”

Merklin offers a list of additional tasks for plan sponsors and auditors:

  • Making sure the plan documents contain the correct definition of compensation, and that the definition is being applied correctly;
  • Looking for any instances of late remittances of participant contributions and loan repayments;
  • Looking for any instances of failure to comply with participant elections;
  • Looking for instances of improper application of eligibility provisions of the plan;
  • Making sure there have not been any instances of calculations of improper vesting and employee distributions;
  • Checking to see if there has been turnover of employees who have responsibilities relating to the plan, and whether current employees with such responsibilities are adequately trained;
  • Making certain the plan is being operated in accordance with the plan documents;
  • Asking who is responsible for making certain the plan documents are amended and restated in a timely manner;
  • Asking what oversight the plan sponsor performs with regard to third-party administration of the plan; and
  • Asking what the plan’s stated investment strategy is and how it is reflected in the investments offered to participants.

Merklin concludes, “Overall, plan sponsors have to ask ‘Am I doing things the right way?,’ whether it’s a large company that has the capability to do an internal audit or whether it’s a smaller company using an outside auditor. As the saying goes, an ounce of prevention is worth a pound of cure. Audits can potentially help plans to avoid a DOL investigation. Such investigations can continue on for months or even years, putting a drain on a company’s resources. Auditing plan documents before that happens can save companies a lot of time, money and aggravation.”

Data & Research April 17, 2014

Clients Have Strong Grip on Advisers' Time

A new study from the Financial Planning Association's (FPA) Research and Practice Institute finds financial advisers are not completely in control of their time and business operations.
Reported by

FPA’s 2014 Time Management and Productivity Study takes a deep dive into a variety of issues impacting today’s financial advisers, based on a survey of 750 financial advice professionals across the U.S. representing all prevalent channels and a wide range of business sizes and models. The research suggests many advisory firms would benefit from better process standardization and more effective long-term planning and task delegation.

“This study probed further into the time management issue and exposed the unfortunate snowball effect poor time management has on … all advisers,” explains Lauren Schadle, executive director and chief executive officer of FPA.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Schadle says the research reveals only a small minority of advisers report feeling like they are in complete control of their time (13%) or their business as a whole (10%). Interestingly, those advisers who say they feel somewhat or completely in control of their time and their business are holding approximately 50 more client meetings per year on average—suggesting the time-crunch experienced by many advisers may be at least in part self-inflicted.

“Obviously if only 13% of advisers feel they have complete control over their time there are going to be far reaching ramifications on their businesses and their overall stress level,” says Valerie Porter, director of the FPA Research and Practice Institute.

The study identifies a list of obstacles that advisers say prevent better productivity and business control, which include trying to do too much for clients (36%); increased administrative burden from new clients or regulations (31%); and procrastination (30%).

FPA says effective time management and productivity starts with a clear vision. Those advisers surveyed who reported having specific, defined business and personal goals were more likely to report high levels of business control. More importantly, the quality of the plans is different for those advisers who say they are in control. Eighty-four percent of those teams who are in control rate their plan as effective, compared with 44% who are not in control.

In addition to having a clear vision, FPA says advisers who had strong infrastructures in place relating to staffing, business processes and technology were more likely to be in control. Fifty-one percent of advisers indicated that having clearly defined and standardized processes is the best way to improve efficiency, followed by better task delegation (47%) and better scheduling (38%). Advisers who were in control were more likely to delegate a wider range of activities.

With respect to personal productivity, FPA says advisers who are in control are more likely to follow a model day or week and schedule more of their recurring activities. Forty-four percent of teams who are in control have a set schedule compared with 20% who are not in control.

Those advisers who are in control are also more likely to have used tools such as a time tracker (42% of teams who are in control compared with 28% who are not) and are less likely to deviate from their schedules.

The full report is available here.

«