Employee Benefit Data Services by mct20122

VIEWS: 22 PAGES: 30

More Info
									         “Seeing Beyond the Numbers…”




Participant Data Testing

      Diane Wasser, CPA
Partner-In-Charge, Pension Services
              Group
  Amper, Politziner & Mattia, LLP
  Participant Data Testing
• The objectives of auditing procedures applied to
  participant data are to provide the auditor with a
  reasonable basis for concluding whether:
   – all covered employees have been properly included
     in employee eligibility records and contribution
     reports
   – accurate participant data for eligible employees
     was supplied to the plan administrator (and
     actuary)
  Participant Data Testing
• Types of data tested, in general:
   – Demographic data
   – Payroll data (wage rate, hours worked, earnings)
   – Contributions (employee and employer)
   – Benefit data for those receiving benefits (benefit levels,
     benefit options and benefit elections)
   – Enrollment elections and claims data – H&W
• Start by reviewing the plan document to determine
  what participant data to test and the objectives of the
  test
• Inquire early in planning of any plan amendments!
 Participant Data Testing
• Testing of the participant accounts is the
  same in limited scope and full scope
  audits
  – The allocation of investment income to individual accounts is
    not certified

• Material transaction class
  – Generally encompasses payroll and personnel information,
    contributions, participant account activity, fund allocations,
    and distributions
  Participant Data Testing
• The objective of auditing procedures applied to
  individual participant accounts of defined
  contribution plans is to provide the auditor with a
  reasonable basis for concluding whether:
   – Net assets have been allocated to the individual participant
     accounts in accordance with the plan instrument
   – The sum of the participant accounts reconciles with the total
     net assets available for plan benefits
   – Participant transactions are authorized and have been
     executed at the proper amount in the proper period
  Participant Data Testing
• In a defined benefit plan audit, auditors should satisfy
  themselves that the participant data provided to and used
  by the actuary are accurate and complete in all material
  respects
• The objective of auditing procedures applied to
  accumulated plan benefits is to provide the auditor with a
  reasonable basis for concluding whether the actuarial
  present value of accumulated plan benefits, components of
  those benefits, and amounts of changes in the actuarial
  present value of accumulated plan benefits are presented
  in conformity with FASB 35 (FASB ASC 960)
  Participant Data Testing
• Contributions to a defined benefit plan ordinarily are
  determined on the basis of an actuarial valuation of the
  plan carried out by the plan actuary, using participant data
  received from the plan administrator and using actuarial
  techniques.
• Auditors should:
   – Obtain an understanding of the methods and assumptions used
     by the actuary
   – Obtain satisfaction regarding the professional qualifications of
     the actuary and relationships that may impair objectivity
   – Make appropriate tests of data provided to the specialist, taking
     into account the auditor’s assessment of control risk and
   – Evaluate whether the specialist’s findings support the related
     assertions in the financial statements.
    Participant Data Testing
•   Eligibility
•   Contributions
•   Census
•   Distributions
•   Vesting
•   Income allocations
      – Investment income has several components, net appreciation is typically not allocated
          yet is derived based on the end of day pricing of investments, interest and dividends is
          typically allocated
•   Fund allocations
•   Expense allocations
•   Forfeiture allocations
•   Loans
•   Rollovers
•   Transfers/Plan mergers
         Participant Data Testing
• Errors are important!
   – Non compliance with the plan document is an operational defect that
     can cause plan disqualification
• Careful assessment of materiality at the participant level is
  imperative
• Qualitative aspects of materiality
   – Participant contribution errors (i.e. Incorrect compensation base)
       • Could be systematic and impact many participants
         over many years
       • Making participants whole
       • Operational errors
          – Impact on tax exempt status
                  Contribution Test
• Consider reliance on SAS 70 to reduce (not eliminate) procedures
• Test employee deferrals and employer contributions for a sample
  of participants
   – Employee deferral is the amount withheld from an employee’s pay,
     must audit employee elections of desired deferral %
       • Assure the amount withheld is per the participants’ direction and
         calculated based on the compensation as defined in the plan document
   – Paperless considerations
       • Consider confirmation
   – Verify salary to payroll information or W-2
           Contribution Test
– Employer contribution is the amount contributed by the
  employer , may be a matching contribution or
  discretionary contribution
   • Assure calculated in accordance with the plan’s
     provisions
   • If based on milestones of Plan Sponsor, assure
     milestones were met
   • Watch for plan amendments reducing or eliminating
– Assure the participant is eligible for the contribution,
  could be a waiting period or last day of year employment
  requirement
               Contribution Test
• Eligible compensation
   – Plan documents specify the various aspects of
     compensation (base wages, overtime and bonuses) that are
     considered in the calculation of plan contributions in
     defined contribution plans and in the determination of
     benefits in a defined benefit plan
   – Testing payroll data includes the determination of eligible
     compensation for individual employees per the plan
     document and comparison of the definition of eligible
     compensation used in the daily operation of the plan
            Contribution Test
• Don’t forget payroll testing
  – Is the participant’s compensation what it is
    supposed to be?
  – Outsourced – get SAS 70
  – In house – SAS 94; review 404 work; review
    internal audit department work
                      Eligibility
• Testing is performed to ensure eligibility requirements are being met
  and participants are entering the plan at the appropriate time
• Consider reliance on SAS 70 to reduce (not eliminate) procedures
• Typical eligibility requirements
   – Time requirements: Immediate, One Month, Three Months,
     One Year
   – Hour requirements: One hour, 1,000 hours
   – Possible combination of time and hour requirement
   – Eligibility may differ between employee and employer
     contributions
   – Entry dates: Immediate, beginning of each month, beginning of
     each quarter, beginning of each year
                     Census Test

• Test demographic data
   – Sex, marital status, birth date, date of hire, union status,
      department, etc.
• Determine if information on the participant statements or
  actuary census is consistent with information in the personnel
  files
• Consider reliance on SAS 70 to reduce (not eliminate)
  procedures
               Census Test
• Verify demographic data
   –   I-9 form
   –   Pension plan enrollment form
   –   Employment application
   –   Insurance information
• Verify salary to payroll information or W-2
• In a defined benefit plan audit, watch the date of the
  actuarial census (beginning of year or end of year) and
  be sure testing includes information for the proper
  date
Distributions/Benefit Payments
  • Objectives
    – To provide a reasonable basis for
      concluding whether:
       • payments are in accordance with plan
         provisions
       • payments are made to those entitled to them
       • transactions are recorded in the proper
         account, amount, and period
Distributions/Benefit Payments
  • Consider reliance on SAS 70 to reduce (not eliminate)
    procedures
  • Trace to supporting documentation (benefit
    election/request form, approval form, cancelled check,
    wire confirmation)
  • Recalculate distribution amount (trace to actuarial
    determination of benefit)
  • Consider confirmation
  • Determine remaining balance is $0
  • Determine eligibility for the distribution (death certificate)
  • Recalculate vesting
  • Determine continued eligibility for payment
 Participant Data/Allocation Testing

• One of the objectives of auditing procedures applied
  to individual participant accounts of a defined
  contribution plan is to provide the auditor with a
  reasonable basis for concluding whether net assets
  and transactions have been properly allocated to
  participant accounts in accordance with the plan
  documents
    Participant Data/Allocation Testing
•   Interest and dividends
•   Appreciation/depreciation
•   Fund allocation
•   Expenses
•   Forfeitures
•   Transfers and mergers
 Participant Data/Allocation Testing
• Interest and dividends
   – Are allocated among participants, should be reasonable based on overall plan
     level calculation
• Appreciation/depreciation
   – Driven by NAV/stock prices etc.
• Fund allocation
   – Consider confirmation
   – Request information from the record keeper
• Expenses
• Forfeitures
• Transfers and mergers
   – Don’t ignore
 Participant Data/Allocation Testing
• Consider reliance on SAS 70 to reduce (not eliminate)
  procedures
• Substandard audit procedures
                            Loans
• Read the plan’s loan policy
        • Sometimes a separate document from the plan document
•   Review loan listing
•   Tie loan listing to financial statements
•   Review listing for consistent/inconsistent payment activity
•   Review delinquency reports
                              Loans
• Select loans to test:
   – Rate of interest is in accordance with the plan’s loan provisions
   – Vesting and loan limits at time of origination
       • Cannot exceed 50% of participants’ vested balance or $50,000
   – Repayments are being made
• Consider reliance on SAS 70 to reduce (not eliminate)
  procedures
               Rollovers
• Don’t forget about them
• If material consider specific procedures
• Perhaps analytical procedures
           Plan Mergers
• Amounts merged into a plan can be material and
  should not be ignored
• Consider whether the amounts transferred in were
  properly allocated to participant accounts in the
  receiving plan
• Assure the amount transferred out was properly
  received
         Plan Terminations
• In the current economy, there is an increase in plan
  terminations and perhaps partial terminations
• Watch vesting of affected participants in partial
  terminations
• Consider audit approach changes
   –   No contributions
   –   No new participants becoming eligible
   –   No changes to census
   –   Material distributions
       Participant Testing
• In summary, participant testing is an integral part of
  an employee benefit plan audit
• The activity generally constitutes a material
  transaction class
      Participant Testing
• Participant elections drive the contributions,
  determine where the contributions are invested,
  which drives the plan earnings activity, and drive
  distributions
• In a defined benefit plan, the information used by the
  actuary in the census determine the contributions
  required to ultimately fulfill the benefit obligations
  and to determine the amounts ultimately distributed
“The material contained in this presentation is for general
  information and should not be acted upon without prior
                professional consultation.”



                                          Diane Wasser
                                          (908) 218-5002
                                     wasser@amper.com

								
To top