Auditing Employee Benefit Plans Flashcards
Employee benefit plans are subject to…..?
ERISA (most are subject to this)
What are the two basic type of employee benefit plans that are tested?
1) Welfare plans- Healthcare, disability, vacation, life insurance, etc.
2) Pension Plans- Retirement income or deferral of income
What are the pension plan eligibility requirements?
1) Minimum age cannot be set above 21
2) Minimum employment to enter is normally 12 months
3) At least 1000 hours of work to count towards eligibility
What are some of the ERISA Requirements?
Nondiscrimination- requires broad participation across employees
Vesting- Establishes minimum vesting standards
Funding- “qualified” pension plans (tax exempt) have funding requirements; welfare plans do not
Exemptions- ERISA includes certain specific exemptions
T/F: The auditor should determine whether ERISA applies or does not or whether it must be audited?
NOPE- it is the legal counsel who is responsible
Define: Defined benefit
Usually do not have separate accounts for individual participants
Define: Defined contribution
Have separate accounts for participants and benefits are limited to the balance in each account
What are unfunded versus funded
unfunded- paid from employers assets or by insurance. ERISA exempts unfunded plans
funded- all of the plan are subject to ERISA audit requirements and the plans assets are required to be held in a trust
What is a traditional plan under a defined benefit plans?
Benefits are based on the plans benefit formula
What is a cash balance plan under a defined benefit plan?
Participant may choose a lump sum of cash distribution or an annuity
What is a 401(K) plan under a defined contribution?
Permit employees to defer some income to the pension plan; taxes are deferred until the distribution occurs
What is a Roth 401(K) plan?
Contribution are done at after-tax dollars without taxes on the future distribution
What are 403(b) plans?
Similar to 401(K) for charities and public schools; they have to be made amiable to everyone. Can be held is a custodial account.
What is ESOP?
Incentive plan in employers securities
What is the Department of Labor (DOL) FORM 5500?
DOL requires plan financial statements to be filed on FORM 5500, “annual return” Report of employment benefit plan
Financial statements can be GAAP, cash basis, or modified cash basis
DOL requires auditor to report on whether those F/S comply with DOL requirements