Two officials from the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) and a regulator with the Internal Revenue Service (IRS) made that assertion during an EBSA-sponsored Webinar discussing the various reports benefit plans must file with the two agencies.
Scott C. Albert, Chief of EBSA’s Division of Reporting Compliance, told the Webinar audience that employers can actually fend off a variety of problems by properly gathering the data necessary to complete the annual report, Form 5500. Among other benefits, Albert said, having good data management systems in place can help the plan sponsor properly monitor the investment returns of the plan’s lineup options as well as to keep an eye on provider performance.
In addition, Michael E. Auerbach, EBSA’s Chief of the Division of Accounting Services, reminded plan sponsors of the need to have the plan’s financial data as reported on the Form 5500 properly audited by a qualified financial professional.
Lawmakers inserted the auditing requirement to make certain a separate, unbiased party was keeping an eye on the plan’s compliance, he said. Calling auditors EBSA’s “first line of defense,” Auerbach said: “They become our eyes and ears to help ensure the plan is run properly.” He added that this is particularly true when it comes to plan-related fraud and prohibited transactions.
Auerbach cautioned that sponsors need to find the right person for the job—someone who is properly licensed by a state accounting authority. “We expect administrators to show prudence and due diligence when they come into the market to hire an auditor,” he said.
He warned that plan auditors cannot have any personal relationship to the plan. Regulators have actually run across auditors who had invested in the plan they were reporting on. “It doesn’t work like that, folks,’ Auerbach said.
Finally, Auerbach asserted, preparing for a plan audit is a good time to make certain the plan has the proper accounting controls in place and to collect the documents proving those controls give the auditors.
Avoiding Form 5500 Miscues
The Webinar audience also heard from Mark F. O’Donnell, IRS Director of Customer Education and Outreach Employee Plans, Tax-Exempt & Government Entities Division, about common Form 5500 mistakes including:
- forgetting to sign the submitted document;
- mot making certain the employer identification number (EIN) and plan number are correct—which is frequently a problem when companies merge and have combined their plans. O’Donnell reminded the audience that those numbers are typically the only way the IRS can make certain it has gotten required data from the right employer and plan;
- not properly indicating on the form that it is the last report for a plan in the process of being terminated and that all assets have been distributed to participants and beneficiaries.
Albert also touched on the need to find accurate ways to properly value a plan’s alternative investment holdings in such vehicles as hedge funds and private equity portfolios.
He also discussed regulators’ late filer program and revealed that EBSA is developing a way for plan sponsors to pay their fees electronically through a U.S. Department of the Treasury commerce portal.
The regulators’ Thursday Webinar presentation is available here.