Frequently Asked Questions

You should become familiar with the DOL’s new reporting and independent audit requirements for ERISA-covered 403(b) plans, including the DOL “safe harbor” rules for annuity contracts or custodial accounts in 29 C.F.R§ 2510..3-2(f), and determine your plan’s Form 5500 reporting and audit requirements. Is your plan eligible to use the new simplified Short Form 5500? Short Form filers will need to report the total value of plan assets and the number of plan participants. If your plan is not eligible to use the simplified Short Form 5500, how will your plan meet the form 5500 reporting and independent audit requirements? Will the plan’s financial states and Form 5500 be prepared by in house personnel or by an external service provider? Do you have a CPA firm with the proper experience and qualifications to perform the plan audit?

Legislation¹ removed an exemption for ERISA-covered 403(b) plans, and will subject them to the same annual reporting requirements as 401(k) plans. Beginning January 1, 2009, when plans file a 2009 Form 5500, there will be additional information to be completed and many plans will be required to have an annual audit of the plan’s financial statements.

¹In 2007, the Department of Labor issued “annual Reporting and disclosure; Revision of Annual Information Return/Reports; Final Rule and Notice".(http://www.dol.gov/ebsa/regs/fedreg/final/20071116.pdf).

Only plans not subject to Title 1 of ERISA are not required to file a Form 5500. Some plans that are not filling a Form 5500 should be, just as some plans that are filling a Form 5500 do not need to file. This determination is not easy and only legal counsel from an ERISA attorney can make that determination.

Large Plans- ERISA-covered plans with 100 or more eligible participants generally will be required to file audited financial statements beginning with their 2009 Form 5500 filing as a “large plan.” Small Plans- ERISA-covered plans with fewer than 100 eligible participants may be able to use a new Short Form 5500 as a “small plan.” In years subsequent to the initial filing year, a plan that covers between 80-120 eligible participants at the beginning of the plan year may elect to complete the Form 5500 in the same category (“large plan” or “small plan”) as was filed for the previous year. The 80-120 Participant Rule Exception is available until your plan exceeds 120 eligible participants. {DOL Reg. 29 CFR 2520.103-1(d)}.

Designate an individual at the plan or plan sponsor to be responsible for ensuring that the plan meets its reporting responsibilities. This individual should have knowledge and expertise in financial accounting and reporting and an understanding of GAAP for employee benefit plans. This could be an individual in the sponsor’s financial accounting department.

If your plan must have an independent audit, select an auditor that has prior experience with employee benefit plans and can perform a quality audit. A quality audit helps ensure the financial integrity of a plan and protect against plan assets. A quality audit also will help the plan administrator carry out its legal responsibility to file a complete and accurate annual return/report for the plan each year. Discuss with your auditor whether there will be any scope restrictions on the plan (i.e.- limited scope exemption) and whether the requisite conditions are met.

An SOC Report is issued by a CPA addressing the policies, procedures and controls of an organization processing transactions for others. The report provides an opinion by the auditor with regard to the organization’s control procedures including: the accuracy in the description, the appropriateness and, in certain cases, the operating effectiveness of the controls. To issue a report, an auditor will review the control objectives and procedures prepared by organizational management and conduct tests (on a specific date or over a predetermined time period) to determine the accuracy of the description.

An SOC Report demonstrates an organization’s commitment to quality. This report is an invaluable marketing tool providing customers and prospective customers with affirmation of an organization’s good business practices. An SOC Report also provides assurance that transactions are processed appropriately and supported by good controls. More and more it is a differentiating factor in the decisions of potential customers looking for a service organization.

Although SOC/SAS 70 Reports have been in existence for almost two decades, service organizations are seeing increased requests as a result of privacy laws and the increased scrutiny companies face to verify they have strong internal controls over all of their accounting and IT processes. Publicly-traded companies, in particular, are required to have SOC Audits conducted on service organizations included within their internal control environment. Many small and medium size companies are currently experiencing a trickle down of compliance requirements from their larger customers; even though they may never have had their financial statements audited and are not publicly traded. SOC Audits are predominantly affecting IT companies, benefit plan administrators, billing and claim adjudication providers, and payroll service providers particularly hard.

Only a CPA can render an opinion for a SOC Report. However, because of the level and sophistication of technology in most service organizations, SVA uses a combination of on-staff CPA’s and Certified IT professionals on virtually all SOC Audits.

SVA’s experience and greatest value in providing SOC services lies with firms that provide accounting outsourcing services such as payroll, billing, collections, and payment-service providers. As a provider of outsourced accounting service and claims and benefits administration ourselves through our various SVA divisions, we have in-depth knowledge of required controls and privacy issues that need to be addressed by an organization. We leverage that knowledge to provide an efficient and effective SOC audit.

SVA’s experience in competitive bid situations has proven we are typically significantly less expensive than our Big Four Firm rivals, who are structured to address large scale engagements, and very competitive with all regional firms. With lower overhead than a large national firm and more experienced professionals who actually perform the fieldwork, SVA offers the most efficient service for the money. Specifically, each phase of the engagement is billed at fixed fee plus expenses quoted based upon a complimentary first site visit. Our rates vary based upon the time of year procedures are anticipated to be performed. Typically because SOC audits are not bound by calendar year-end requirements, the audit procedures can be performed during the May-December time frame where SVA rates are at their most competitive.

An independent audit often is required when a business or organization holds something of value – usually money or inventory – for others. While there are many different types of audits, they share a common purpose: to assure stakeholders that their interests are being properly managed and safeguarded.

An audited financial statement can reduce your cost of capital. That’s because audited financial statements provide reliable information that others – for example, bankers – rely on to reduce their assessed risk.

Assume a bank has a loan application from two companies, identical in every respect, including the numbers. One company has been audited or reviewed; the other has not. All things being equal, the bank will charge a lower rate of interest – and may impose fewer or less onerous covenants – to the company with the audited or reviewed statements.

The most prevalent type of audit is the financial statement audit, where an auditor provides assurance to the users of a company’s financial statements, through an auditor’s report, that the company’s financial statements present fairly, in all material respects, the financial position of the company.

There are other types of audits, primarily related to some form of internal control audit, in which the auditor assesses the design of a company’s internal controls and tests to verify that those controls are implemented as designed.

Although the audit may be mandated by a bank or regulatory authority, the company being audited is responsible for selecting the appropriate firm and paying the fee for the audit.

Certified public accountants adhere to the American Institute of Certified Public Accountants’ Code of Professional Conduct, which requires CPAs to act with integrity, competence and independence. These three attributes contribute to objectivity. The value of an audited financial statement is derived from the CPA’s professional obligation to remain objective.

The independent auditor’s report is addressed to the group of people charged with governance of a company. This typically is the audit committee or board of directors of larger organizations or the members or stockholders of closely-held organizations.