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More About This Title Employee Benefit Plans 2017
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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 ConcernFASB ASU No. 2016-19, Technical Corrections and Improvements- English
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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
Appendix
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
Glossary
Index of Pronouncements andOther TechnicalGuidance
Subject Index