Q.	Can the plan sponsor accept a certification from the plan's recordkeeper if the recordkeeper certifies the investment information to be complete and accurate on behalf of the plan's trustee/custodian as "agent for"?
A.	According to the U.S. Department of Labor (DOL), such a certification generally would be acceptable if there is in fact a legal arrangement between the trustee and the recordkeeper to be able to provide the certification on the trustee's behalf. Care should be taken by the plan administrator to obtain such legal documentation. Additionally the plan auditor might consider adding wording to the standard limited scope report to include reference to such an arrangement. Sample language might include the following: "any auditing procedures with respect to the information described in Note X, which was certified by ABC, Inc., the recordkeeper of the Plan as agent for XYZ Bank, the trustee of the Plan…We have been informed by the plan administrator that the trustee holds the Plan's investment assets and executes investment transactions. The plan administrator has obtained a certification from the agent on behalf of the trustee, as of and for the year ended December 31, 20XX, that the information provided to the plan administrator by the agent for the trustee is complete and accurate." The third paragraph of the report should also be modified.
Q.	Is it permissible to perform a limited scope audit on a portion of the plan’s investments but not all (some investments did not meet the DOL 29 CFR 2520.103-8 criteria for a limited scope audit)? If yes, what form does the auditors' report take?
A.	Yes, it is permissible to perform a limited scope audit on only a portion of a plan's investments and audit the remaining investments. The auditors' report is the same as that used for a limited scope audit. However, the note that is referenced in the auditor report should clearly identify the investments that were not audited.
Q.	Under Form 5500 (Schedule H, Part IV, line 4j), there is a special rule whereby transactions under an individual account plan that a participant directs should not be taken into account for purposes of preparing the Schedule of Reportable Transactions. What about situations where an individual account plan is participant-directed but has certain transactions that appear to be nonparticipant-directed (for example, "pass through" account for contributions)?
A.	If the plan is an individual account plan and the overall structure of the plan is participant-directed, "pass through" account transactions would not be required to be included on the Schedule of Reportable Transactions. Another example would be a participant-directed individual account plan that liquidates its investment options as a result of a plan termination, merger, or change in service provider. Often such changes result in the plan sponsor directing the plan trustee to liquidate the current balance in the participant-directed investment options into a short-term fund before the transfer to new investment options. Such transactions would be not be required to be included on the Schedule of Reportable Transactions.
Q.	What are the general conditions requiring an audit of pension plan financial statements?
A.	An audit generally is required if the plan is covered under Title I of the Employee Retirement Income Security Act of 1974 (ERISA) and there are over 100 participants as of the beginning of the plan year. Exhibit 5-2 in Chapter 5 of the AICPA Audit and Accounting Guide Employee Benefit Plans provides guidance on determining who is considered a participant. In addition, DOL regulations permit plans that have between 80 and 120 participants at the beginning of the plan year to complete the Form 5500 in the same category ("large plan" or "small plan") as was filed in the previous year.
Q.	What audit procedures should be performed on material plan mergers into a plan? What audit procedures are required when the prior plan was audited? What if the prior plan was never audited?
A.	If the prior plan was audited, the auditor should obtain the audited financial statements to ensure that the balance transferred from the prior plan financial statements reconciles to the balance that is reflected on the new plan's financial statements. Also, the auditor will generally perform procedures to ensure that a sample of participant accounts were properly set up under the new plan. In addition to the participant level testing, if the prior plan was not audited, the auditor will generally perform audit procedures to determine that the equity that is transferred from the prior plan is reasonable based upon an analysis of historical activity. (Other audit procedures relating to plan mergers can be found in Chapter 12 of the Audit and Accounting Guide.)
Q.	When a plan operates in a decentralized environment, what additional audit procedures should be considered?
A.	The auditor should consider the controls at each decentralized location as well as the overall mitigating controls that may be performed on a centralized basis. Taking into consideration the materiality of the activity at each decentralized location, the auditor may choose to expand participant level and substantive testing to incorporate these decentralized locations.
Q.	When the majority of a plan's assets are held in a master trust, but the plan has investments outside of the master trust, what are the requirements for the supplemental schedules?
A.	The Form 5500 instructions exclude master trust assets from the supplemental schedule reporting requirements. However, any assets held outside the master trust must be reported on the supplemental schedules. When calculating the 5 percent threshold for disclosing reportable transactions, the current value of master trust assets is subtracted from the beginning of the year net asset balance.
Q.	Is the master trust required to be audited?
A.	While the DOL does not require the master trust to be audited, the plan administrator normally engages an auditor to report only on the financial statements of the individual plans. If the master trust is not audited, the plan auditor should perform those procedures necessary to obtain sufficient audit evidence to support the financial statement assertions as to the plan’s investments or qualify or disclaim his or her report.
Q.	Is a certification at the master trust level acceptable under DOL regulation 2520.103-8?
A.	If a limited scope audit is to be performed on a plan funded under a master trust arrangement or other similar vehicle, the DOL requires separate individual plan certifications from the trustee or the custodian regarding the allocation of the assets and the related income activity to the specific plan.
Q.	Should noninterest-bearing cash be included as an asset on the supplemental schedule of assets (held at end of year)?
A.	Generally, only assets held for investment are included on the supplemental schedule of assets (held at end of year); thus noninterest-bearing cash would not be included. Interest-bearing cash accounts would be included on the supplemental schedule.
Q.	Can immaterial investments be netted together as "other" on the supplemental schedule of assets (held at end of year)?
A.	No, each investment must be separately listed on the supplemental schedule.
Q.	What is the auditor’s responsibility for detecting nonexempt transactions resulting from participant contributions that are not remitted to the plan within the guidelines established by DOL regulations?
A.	An audit performed in accordance with generally accepted auditing standards (GAAS) cannot be expected to provide assurance that all party-in-interest transactions will be discovered. Nevertheless, during the audit the auditor should be aware of the possible existence of party-in-interest transactions. During the planning phase of the audit, the auditor should inquire about the existence of any party-in-interest or nonexempt transactions. If any issues relating to late remittances are brought to the auditor’s attention, the auditor may consider obtaining a schedule of employee contributions detailing payroll withholding date and date of deposit to the plan. A sample of deposits can then be traced to the supporting payroll register and wire transfer advice or check. Further, the auditor should have the client include in the management representation letter a representation that there are no party-in-interest transactions that have not been disclosed in the supplemental schedules.
Q.	If a nonexempt transaction related to the above is noted, is materiality of the transaction taken into consideration in determining the need for the supplemental schedule of nonexempt transactions?
A.	There is no materiality threshold for the inclusion on the supplemental schedule. All known events must be reported.
Q.	When is a plan subject to the requirements of the Securities and Exchange Act of 1933, thus requiring a Form 11-K filing under the Securities and Exchange Act of 1934?
A.	Section 3(a)(2) of the Securities and Exchange Act of 1933 provides exemptions from registration requirements for defined benefit plans and defined contribution plans not involving the purchase of employer securities with employee contributions. All other plans are subject to the requirements, provided they are both voluntary and contributory. (For further guidance, see chapter 12 of the Audit and Accounting Guide.) Advice of counsel should be obtained to determine if the registration requirements apply to the plan.
Q.	What responsibility does the auditor have in testing plan qualification tests (for example, ACP and ADP) prepared by a client’s third-party administrator?
A.	An audit in accordance with GAAS is not designed to ensure compliance with all legislative and regulatory provisions. However, Plans must be designed and comply with certain operating tests in order to maintain their qualified status. If specific information comes to the auditor’s attention that provides evidence concerning the existence of possible violations affecting the financial statements, the auditor should apply auditing procedures specifically directed to ascertaining whether a violation has occurred. The auditor is also expected to inquire of, and obtain representation from, management concerning compliance with laws and regulations and the prevention of violations that may cause disqualification.
Q.	If the plan fails its 20X0 discrimination test and has to return employee contributions in 20X1 should “Excess Contribution Payable” liability be shown on the 20X0 financial statement?
A.	Yes, the financial statements should reflect a liability for excess contributions payable on the financial statements if the amount is material to the financial statements.
Q.	What alternate audit procedures should be done to test participants’ investment allocation of deferral contributions where no documentation exists (participants can change deferrals and allocation of such online or via phone)?
A.	Where participants make contributions or investment elections by telephone or electronic means (such as the Internet), consider confirming contribution percentage, source, and investment election directly with the participant or compare to a transaction report, if one is maintained. Alternatively, if the service provider has a Type 2 Statement on Auditing Standards (SAS) No. 70, Service Organizations, as amended, report that provides evidence that the service auditor has tested investment allocations, the auditor may place some reliance on the SAS No. 70 report to reduce (not eliminate) substantive testing.
Q.	For a DOL-limited scope audit, is it necessary to test the allocation of investment earnings at the participant account level?
A.	The testing of allocation of investment earnings at the participant level is part of the participant data testing and is required for a limited scope audit.
Q.	I understand that brokerage accounts can be listed on one line item on the Form 5500. Can they be listed on one line item on the supplemental schedules to the financial statements or do the individual underlying investments have to be listed?
A.	As described in the Form 5500 instructions, individually directed brokerage accounts may be listed as one line item on the statement of net assets available for benefits and on the supplemental schedule of assets, provided the investments are not loans, partnerships or joint-venture interests, real property, employer securities, or investments that could result in a loss in excess of the account balance of the participant or beneficiary who directed the transaction. However, the notes to the financial statements must disclose any individual investment that is over 5 percent of net assets available for benefits at the end of the year. In addition, the investment income for individually directed brokerage accounts may be shown as one line item in the Form 5500; however, the financial statements must separate interest and dividends from net appreciation (depreciation) in fair value on the statement of changes in net assets available for benefits and disclose net appreciation (depreciation) by type of investment in the notes to the financial statements.