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Employee Benefit Plans 2017

Employee Benefit Plans 2017


ISBN: 978-1-945-49835-0

May 2017

880 pages


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This edition has been updated to include expanded information on related parties and parties in interest, plan transfers, and changes in service providers. Notably, the guide contains clarification on plan transfers—identifying a plan transfer may be challenging because the reports provided by the trustee or custodian may classify the transfer as a conversion, miscellaneous adjustment, or as contributions or distributions, rather than a plan transfer. Further, the date at which the plan’s assets physically transfer (assets move from the predecessor plan’s trust to the successor plan’s trust) may differ from the effective date of the transfer (the date at which the plan assets are legally transferred to the control of another plan), according to relevant plan amendments or other documents.

In addition, this edition has been updated for requirements related to going concern and provides the main provisions of those requirements:

  • FASB ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
  • FASB ASU No. 2016-19, Technical Corrections and Improvements

Related Resources


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1 Introduction and Background 01-37

Introduction 01-07

Applicability to Governmental Entities 04-07

Background 08-12

Defined Contribution Retirement Plans 09

Employee Stock Ownership Plans 10

Defined Benefit Pension Plans 11

Health and Welfare Benefit Plans 12

Financial Accounting and Reporting for ERISA Plans 13-21

Governmental Regulations 15

Reporting and Disclosure Requirements 16-19

Plans Pursuant to the SEC Reporting Requirements 20-21

Audit Requirements 22-24

Operation and Administration 25-34

Accounting Records 35-37

2 Planning and General Auditing Considerations 01-143

Overview 01-10

Categories of Professional Requirements 08-09

Interpretive Publications 10

Quality Control Standards, Including Client Acceptance and Continuance and Engagement Quality Control Reviews 11-18

Client Acceptance and Continuance 11-16

Engagement Quality Control Review 17-18

Audit Scope 19-38

Limited-Scope Audit Exemption 22-26

Other Applicable Auditing Guidance 27-30

Communication With Those Charged With Governance 31-38

Engagement Letter 39-43

Audit Planning 44-62

Coordination of Plan Sponsor and Plan Audits 48

Considerations for Payroll and Demographic Data 49-53

Use of Internal Auditors 54-57

Involvement of Professionals Possessing Specialized Skills 58-59

Financial Reporting Considerations 60-61

Communication and Coordination 62

Audit Risk 63

Transactions Processed by Service Organizations 64

Using the Work of a Specialist 65-94

Background 65

Decision to Use the Work of a Specialist 66-94

Related-Party and Party in Interest Transactions 95-114

Audit Considerations 106-116

Consideration of Laws and Regulations and Prohibited Transactions 117-128

Communication With Responsible Parties 125

Effect on the Auditor’s Report 126-128

Accounting Estimates 129-130

Going Concern Considerations 131-134

Initial Audits of the Plan 135-143

3 Audit Risk Assessment 01-71

Overview 01

Audit Risk 02-06

Planning Materiality 07-11

Performance Materiality 10-11

Understanding the Entity and Its Environment, Including Its Internal Control 12-29

Risk Assessment Procedures 15-22

Discussion Among the Engagement Team 23-24

The Entity and Its Environment 25-27

The Entity’s Internal Control 28-29

Risks Assessment and the Design of Further Audit Procedures 30-49

Identifying and Assessing the Risks of Material Misstatement 30

Use of Assertions in Assessment of Risks of Material Misstatement  31-36

Other Risk Assessment Considerations 37

Designing and Performing Further Audit Procedures 38-49

Evaluation of Misstatements Identified During the Audit 50-53

Audit Documentation 54-55

Consideration of Fraud 56-71

Risk Assessment Procedures and Related Activities 58-60

Identification and Assessment of the Risks of Material Misstatement Due to Fraud 61-68

Evaluation of Audit Evidence 69-71

4 Internal Control 01-28

Using a Service Organization and Related Audit Considerations 11-28

5 Defined Contribution Retirement Plans Including Employee Stock Ownership Plans 01-801

5A Defined Contribution Retirement Plans 01-399

Introduction and Background 01-05

Administration and Operation of a DC Plan 06-08

Accounting, Reporting, and Auditing DC Plans 09-10

Financial Statements 11-12

Net Assets Available for Benefits 13-67

Participant Allocations 14-15

Cash Balances 16-19

Investments 20-48

Participant Loans (Notes Receivable From Participants) 49-51

Contributions and Contributions Receivable 52-56

Rollover Contributions 57-58

Other Receivables 59

Forfeitures 60-62

Operating Assets 63-64

Accrued Liabilities 65-67

Changes in Net Assets Available for Benefits 68-76

Participant Benefits, Distributions, and Withdrawals 72

Benefit Payments 73

Plan Expenses 74-76

Financial Statement Disclosures 77-94

Fair Value Measurements 80

Derivatives and Hedging 81-85

Master Trusts 86-88

Financial Instruments 89-90

Risks and Uncertainties 91-94

403(b) Plans or Arrangements 95-98

Plan Transfers (Plan Mergers, Spin-Offs, and Other Transfers) 99-103

Going Concern 104

Terminating Plans (Full and Partial) 105-112

Changes in Service Providers 113-[199]

Auditing Considerations for DC Plans 200-[399]

5A Defined Contribution Retirement Plans—continued

Determining Audit Strategy 204-207

Participant Accounts and Allocations 208-210

Cash Balances 211-215

Investments and Related Income 216-228

Notes Receivable From Participants (Participant Loans) 229-232

Contributions and Certain Participant Data 233-234

Contributions and Contributions Receivable 235-246

Rollover Contributions 247-248

Other Receivables 249-251

Forfeitures 252-254

Operating Assets 255-256

Accrued Liabilities 257-259

Participant Benefits, Distributions and Withdrawals 260-263

Plan Expenses 264-267

Plan Transfers (Plan Mergers, Spin-Offs, and Other Transfers) 268-272

Terminating Plans 273-275

Changes in Service Providers 276-278

SEC Reporting Requirements 279-[399]

5B Employee Stock Ownership Plans 400-801

Introduction and Background 400-421

Participant Allocations 406-408

Valuation Terminology 409

Contributions 410

Distributions 411

Voting Rights 412

Put Option 413

Diversification 414-416

Financing Employer Stock Purchases 417-418

Suspense Account (Unallocated Shares) 419

Share Release Formula 420

Debt Service Payment 421

Administration and Operation of an ESOP 422-423

Regulatory Reporting Requirements 424

Accounting, Reporting, and Auditing ESOPs 425-426

Financial Statements 427-429

Net Assets Available for Benefits 430-461

Allocations 433-436

Cash Balances 437

Investments 438-442

Valuation Techniques 443-448

Participant Loans 449

Contributions and Contributions Receivable 450-452

Rollover Contributions 453

Other Receivables 454

Forfeitures 455-457

Leveraged ESOP Debt 458-459

Accrued Liabilities 460

Other Liabilities 461

Changes in Net Assets Available for Benefits 462-473

Participant Benefits, Distributions, and Withdrawals 468-470

Plan Expenses 471-473

Financial Statement Disclosures 474-492

Fair Value Measurements 478-483

Financial Instruments 484-485

Risks and Uncertainties 486-490

Subsequent Event Considerations for ESOPs 491

Prohibited Transactions and Party in Interest Transactions 492

Plan Mergers and Spin-Offs 493

Going Concern 494

Terminating Plans (Full and Partial) 495-501

Changes in Service Organization 502-[599]

Auditing Considerations for ESOPs 600-799

Determining Audit Strategy 604-607

Valuation Terminology 608

Risk Assessment Considerations 609

Participant Accounts and Allocations 610-613

Cash Balances 614

Investments and Related Income 615-628

Limited-Scope Auditing Considerations 629-631

Contributions and Certain Participant Data 632

Contributions and Contributions Receivable 633-638

Rollover Contributions 639

Forfeitures 640-642

Leveraged ESOP Debt and Interest Expense 643-646

Accrued Liabilities 647

Other Liabilities—Employer Advances 648-651

Participant Benefits, Distributions and Withdrawals 652-658

Floor Price Protection 659-662

5B Employee Stock Ownership Plans—continued

Plan Expenses 663

Plan Mergers and Spin-offs 664

Terminating Plans (Full and Partial) or Frozen Plans 665-770

Changes in Service Providers 671-[799]

Appendix A—Defined Contribution Retirement Plan 800

Appendix B—Regulations, Administration, and Operation of an ESOP 801

6 Defined Benefit Pension Plans 01-205

Introduction and Background 01-04

Administration and Operation of a DB Plan 05-07

Accounting, Reporting, and Auditing DB Plans 08-11

Financial Statements 12-15

Net Assets Available for Benefits 16-71

Cash Balances 16-20

Investments 21-55

Contributions and Contributions Receivable 56-65

Other Receivables 66

Operating Assets 67-68

Accrued Liabilities 69-71

Changes in Net Assets Available for Benefits 72-78

Benefit Payments 75

Plan Expenses 76-78

Accumulated Plan Benefits 79-93

Changes in Accumulated Plan Benefits 94

Financial Statement Disclosures 95-114

Fair Value Measurements 99

Derivatives and Hedging 100-105

Master Trusts 106-107

Financial Instruments 108-109

Risks and Uncertainties 110-114

Plan Transfers (Plan Mergers, Spin-Offs, and Other Transfers) 115-120

Going Concern 121

Terminating Plans (Full or Partial) and Frozen Plans 122-133

Terminating Plans 122-130

Frozen Plans 131-133

Changes in Service Providers 134

Auditing Considerations for DB Plans 135-204

Determining Audit Strategy 139-142

Cash Balances 143-147

Investments and Related Income 148-156

Contributions and Contributions Receivable 157-168

Other Receivables 169-171

Operating Assets 172-174

Accrued Liabilities 175-177

Benefit Payments 178-181

Plan Expenses 182-185

Accumulated Plan Benefits and Participant Census Data 186-192

Plan Transfers (Plan Mergers,Spin-Offs, and Other

Transfers) 193-197

Terminating Plans (Full or Partial) or Frozen DB Plans 198-201

Changes in Service Providers 202-204

Appendix A—Defined Benefit Pension Plan Operations and Administration 205

7 Health and Welfare Benefit Plans 01-237

Introduction and Scope 01-11

Trust Arrangements 05-07

Defining the Reporting Entity 08-11

Background 12-17

Administration of a Health and Welfare Benefit Plan 12

HIPAA Considerations 13-15

Annual Health Care Process 16-17

Health and Welfare Arrangements 18-25

Accounting and Reporting for H&W Plans 20-25

Financial Statements 26-31

Defined Benefit H&W Plan 26-28

Defined Contribution H&W Plan 29-31

Net Assets Available for Benefits 32-74

Cash 33-37

Investments 38-54

401(h) Accounts 55-58

Contributions and Contributions Receivable 59-62

Other Receivables 63-65

Deposits With and Receivables From Insurance

Companies and Other Service Providers 66-70

Operating Assets 71-72

Accrued Liabilities 73-74

Changes in Net Assets Available for Benefits 75-87

Benefit Payments 78

Insurance Premiums 79-83

Plan Expenses 84-87

Benefit Obligations 88-124

Claims 91-98

Premiums Due Under Insurance Arrangements 99-101

Accumulated Eligibility Credits 102-103

Postemployment Benefits 104-110

Postretirement Benefit Obligations 111-124

Changes in Benefit Obligations 125-126

Financial Statement Disclosures 127-144

Fair Value Measurements 133

Derivatives and Hedging 134-138

Financial Instruments 139-140

Risks and Uncertainties 141-144

Plan Transfers (Plan Mergers, Spin-Offs, and Other Transfers) 145-146

Going Concern 147

Terminating Plans 148-157

Terminating Trusts 158-159

Tax Considerations 160-165

Changes in Service Providers 166

Auditing Considerations for H&W Plans 167-234

Determining Audit Strategy 171-174

Confidentiality or Indemnification Agreements 175

Cash Balances 176-179

Investments and Related Income 180-187

Contributions and Contributions Receivable 188-192

Other Receivables 193-195

Deposits With, and Receivables From, Insurance

Companies and Other Service Providers 196-198

Operating Assets 199

Accrued Liabilities 200-202

Benefit and Claim Payments 203-209

Insurance Premiums 210-212

Plan Expenses 213-216

Benefit Obligations—Defined Benefit H&W Plans 217-228

Defined Contribution H&W Plans 229

Plan Transfers (Plan Mergers, Spin-Offs, and Other Plan

Transfers) 230

Terminating Plans or Frozen H&W Plans 231-233

Changes in Service Providers 234

Appendix A—The Annual Health Care Process 235

Appendix B—Examples of Health and Welfare Arrangements 236

Appendix C—Risk Assessment and Internal Control

Considerations—Claim Payments 237

8 Investments 01-174

Introduction 01-02

Background 03-14

Investment Activities and the Use of Service

Organizations 08

The Investment Manager or Adviser 09

The Custodian 10

The Trustee (Directed and Discretionary) 11-13

Investment Recordkeeper 14

Valuation of Investments 15-16

Fair Value Measurement 17-35

Definition of Fair Value 19

Definition of Readily Determinable Fair Value 20

Valuation Techniques 21-23

The Fair Value Hierarchy 24-25

Considerations When Determining Fair Value 26-27

Fair Value Disclosures 28-35

Accounting and Disclosure for Investments 36-38

Statement of Net Assets Available for Benefits 36-37

Statement of Changes in Net Assets Available for Benefits 38

RICs (Mutual Funds) 39

Investments in CCTs 40-42

Master Trust Arrangements 43-48

Other Investments 49-52

Private Investment Funds 49

Separately Managed Accounts 50

Investments Reported as 103-12 Entities as Required

by the DOL 51-52

Contracts With Insurance Entities 53-68

DA Contracts 60-62

IPG Contracts 63

Other Investment Arrangements With Insurance Entities 64-68

Derivatives and Hedging Activities 69-79

Offsetting of Derivatives, Repurchase Agreements, and

Securities Lending Transactions 76-79

Securities Lending Arrangements 80-84

Financial Statement Disclosures 85-96

Insurance Contracts 86-88

Fair Value Measurements 89

Financial Instruments 90-91

Risks and Uncertainties 92-93

Master Trusts 94

Derivatives and Hedging Activities 95

Securities Lending 96

Auditing Considerations for Investments 97-174

Risk Assessment and Internal Control Considerations

for Investments 98-115

Determining Audit Strategy 116-126

Investments and Related Income 127-129

Audit Procedures for Certain Plan Investments 130-163

Investments in Securities That Are Valued Based

on the Investee’s Financial Results 164-166

Limited-Scope Auditing Procedures 167-174

9 Plan Tax Status 01-31

Nondiscrimination and Other Operating Tests for Plan Qualification 12-14

Unrelated Business Taxable Income 15-20

Income Taxes 21-25

Auditing Considerations 26-31

Relevant Assertions 26

Examples of Identified Risks of What Can Go Wrong at the Relevant Assertion Level 27

Example Audit Procedures to Consider 28-31

10 Concluding the Audit and Other Auditing Considerations 01-40

The Form 5500 03-08

Reports Issued Prior to the Form 5500 Filing 07-08

Commitments and Contingencies 09-13

Litigation, Claims, and Assessments 11-13

Subsequent Events 14

Evaluating the Risk of Material Misstatement Due to Fraud at or Near the End of the Audit 15

Plan Representations 16-22

Management Representation Letter 22

Communications With Those Charged With Governance 23-35

Significant Findings From the Audit 27-35

Communicating Internal Control Related Matters Identified in an Audit 36-39

DOL Access to Auditors Working Papers 40

11 The Auditor’s Report 01-90

What This Chapter Provides 03-05

Background 06-17

Forming an Opinion 07-14

Addressing the Auditor’s Report 15

Dating of the Auditor’s Report 16

Content of the Auditor’s Report 17

Supplemental Schedules Relating to ERISA and DOL Regulations (Full-Scope Audits for Nonissuers) 18-24

Full-Scope Audit Considerations 19-24

Plans 25-34

401(k) Plan (US GAAP) 25

401(k) Plan—Special Purpose Framework 26-34

Unmodified Opinions—Defined Benefit Pension Plans 35-36

Illustration of Auditor’s Report on Financial Statements of Defined Benefit Pension Plan Assuming End-of-Year Benefit Information Date 35

Illustration of Auditor’s Report on Financial Statements of DB Plan Assuming Beginning-of-Year Benefit Information Date 36

Unmodified Opinion—Health and Welfare Benefit Plans 37

Unmodified Opinion—Reporting on the Financial Statements of a Trust 38-39

Unmodified Opinion—Form 11-K Filings With the SEC 40-45

Form 11-K Audit Report for Filing With the SEC 44

Form 11-K Audit Report for Filing With the DOL 45

Full-Scope Audits—Unmodified Opinions on the Financial Statements With Modifications to the Report on Supplementary Information 46-52

Departures From, or Omission of, Supplementary Information Required by the DOL 46-49

Omitted Information in a Schedule Required Under DOL Regulations 50

Omitted Schedule Required Under DOL Regulations 51

Prohibited Transactions 53-56

Disclosure of Immaterial Prohibited Transaction With Party in Interest Omitted 55

Limited-Scope Audits Under DOL Regulations 57-71

Reporting on Supplemental Schedules—Limited-Scope Audit Considerations 61-63

Standard Limited-Scope Audit Report 64

Limited-Scope Audit in Prior Year 65-67

Limited-Scope Audit in Current Year 68-69

Limited-Scope Audit in Current Year, Prior Year Limited-Scope Audit Performed by Other Auditors -71

Change in Trustee 72

Reporting on Supplemental Schedules in a Limited-Scope Audit 73-76

Standard Limited-Scope Audit Reports With Modifications to the Report on Supplemental Schedules 77-79

Omitted Schedule Required Under DOL Regulations in a Limited-Scope Engagement 78

Modified Opinion on Supplemental Schedules—Omitted Information Required Under DOL Regulations in a

Limited-Scope Engagement 79

Other Scope Limitations 80

Disclaimer of Opinion on Audit of Multiemployer Pension Plan Due to Scope Limitation 80

Accumulated Plan Benefits—GAAP Departures and Changes in Accounting Estimates 81-83

Terminating Plans 84-85

Going Concern 86

Initial Audits of Plans 87

Prior Period Financial Statements Not Audited 88-90


A ERISA and Related Regulations

B Examples of Controls

C Illustrations of Financial Statements: Defined Contribution Retirement Plans

D Illustrations of Financial Statements: Employee Stock Ownership Plans

E Illustrations of Financial Statements: Defined Benefit Pension Plans

F Illustrations of Financial Statements: Health and Welfare Benefit Plans

G Consideration of Fraud in a Financial Statement Audit

H Schedule of Changes Made to the Text From the Previous Edition


Index of Pronouncements andOther TechnicalGuidance

Subject Index