Newsletters for April 2011
401K Fee Disclosure Requirements To Change
By: Ryan Taylor, CPA, Audit Manager | email
Starting January 1, 2012, the Department of Labor will require 401(k) plans to clearly spell out all fees and expenses each quarter so that investors can more readily compare the costs of their holdings and investment choices.
Current laws don’t require sufficient information to allow workers to make the best investment decisions. Even if workers were given abundant investment information in the past, they didn’t always receive it in a user-friendly format.
Companies must begin laying out the administrative expenses, including accounting and recordkeeping fees, and the charges that apply to the individual choices a worker makes, such as fees charged for loans. The charges for administrative expenses must be laid out in the quarterly reports workers receive and also be made available online.
The fees and expenses associated with the funds a worker chooses must be explained as a percentage of assets held, and also expressed as a dollar amount for each $1,000 invested. Performance data must be provided for the various mutual funds offered, including 1-year, 5-year, and 10-year returns. Comparisons to appropriate benchmarks must also be provided for those time periods to enable investors to assess how their funds are performing.
The new rules also require that workers have access to an easily understood glossary of terms to help explain the investment options, fees, and other details. These rules can help fill an important knowledge gap because many investors don’t know that more than a half a dozen fees may be charged against their 401(k) account for recordkeeping, administration, investment advisory, brokerage and management services.
The regulations, however, offer protection to plan administrators on the completeness and accuracy of the information provided by a plan’s service provider, upon which the administrator reasonably and in good faith, relies.
The new regulations mean that plan administrators will want to discuss with their service providers (third-party administrators, record-keepers, fund managers) the various disclosure requirements and amend plan, trust, and provider agreements as necessary to allocate responsibility for satisfying those requirements.
W-2 Reporting of Health Coverage
By: Gardiner Thomsen CPAs | email
The Internal Revenue Service (IRS) issued interim guidance concerning the Affordable Care Act (ACA) requirement to report the cost of employer-provided health care coverage on Form W-2. Under the new interim guidance, voluntary reporting has been extended for small employers to 2012.
Under the ACA, effective for tax years beginning after December 31, 2010, employers were required to report on Form W-2 the total cost of group health coverage, including the portion paid by the employer and the portion paid by the employee. Last year, the IRS issued guidance making the reporting requirement voluntary for all employers on 2011 Form W-2. Just recently, the IRS provided further relief to small employers- those with less than 250 W-2 forms. Under the new guidance, small employers will not be required to report the cost of employer-provided health care coverage on 2012 Form W-2 as well.
The IRS reminds employers that the new reporting requirement is intended to be informational only, and to provide employees with a better appreciation of the amount that their employers spend on their overall health care costs.
The full notice to employers of interim guidance can be found at:
Disclosure Requirements for Multi-employer Pension Plans
By: Mark Rodruck, CPA, Partner | email
On September 1, 2010, the Financial Accounting Standards Board (FASB) issued an Exposure Draft of a proposed Accounting Standards Update. The proposed update is intended to increase transparency in financial reporting for organizations that participate in multi-employer pension and other postretirement benefit plans. The update suggests new disclosures that the Board believes would help users of financial statements better assess the potential risks faced by those organizations.
Current U.S. GAAP requires employers to disclose their total contribution to multi-employer plans, but there is no requirement to describe the funding status of these plans. The objective of the project is to enhance the disclosures of an employer’s participation in a multi-employer pension plan. The Exposure Draft proposes the following disclosures, among others:
- Total assets and accumulated benefit obligation of the plan
- Quantitative information about the employer’s participation in the plan, for example, the number of its employees as a percentage of total plan participants
- A description of the contractual arrangements between the employer and the plan, including the length of the arrangement, the contribution rates agreed to, and any minimum funding arrangements
- Expected contributions for the next period and known trends in future contributions
- The amount required to be paid upon withdrawal from the plan
- A narrative description of any funding improvement plans adopted by the plan, including the expected effects on the employer.
This change was proposed to be effective for fiscal years ending after December 15, 2010 for public companies. A private company would be required to provide the enhanced disclosures for fiscal years beginning on or after December 15, 2010 (one year later than public companies). However, at its November 10, 2010 meeting, the Board decided that it will not be effective for the 2010 calendar year-end reporting period and it will decide on an effective date at a future meeting after it has substantially concluded its redeliberations. FASB will use the additional time to analyze and digest the more than 320 comments it received on the Exposure Draft, and to decide how to modify its Exposure Draft, if at all. The Board’s technical plan calls for the standard to be issued in the second quarter of 2011.
1099 Update: President Obama Repeals Business Tax Reporting Mandate
By: Gardiner Thomsen CPAs | email
Just recently, President Obama signed a bill repealing a tax-compliance mandate that was included within last year’s health care law. This mandate was going to require any U.S. business, large or small, public or private, to issue a Form 1099 to each and every entity to which it had paid more than $600 for goods and services rendered for business purposes within its fiscal year. This provision was to close the “tax gap,” the estimated $300 billion difference between tax revenue that is collected by the government and that which is not, presumably because of unreported business income. Further, it was doubted that the IRS had the matching capabilities to handle the massive volume of paperwork resulting from this provision, had it not been repealed.
As many of you do, most corporations file taxes on a fiscal year that is different than the calendar year in which 1099 forms are filed which could have resulted in substantial errors in IRS attempts to accurately match information.
If you need additional information or have specific questions about 1099 reporting requirements for your organization please let us know.
Fraud Prevention – Has it Worked?
By: Dave Thomsen, Partner | email
It’s been close to a decade since the high profile fraud incidents at Enron, WorldCom, and Adelphia took place, and the antifraud provisions of the Sarbanes-Oxley Act of 2002 were enacted. We’ve seen additional legislation enacted recently in the Dodd-Frank Wall Street Reform and Consumer Protection Act. So, is corporate fraud under control as a result? Not according to recent reports from organizations who study such activity. In fact, those reports indicate that there is more employee fraud and embezzlement today than there was 10 years ago.
So how can you respond? According to a 2010 survey conducted by the Association of Certified Fraud Examiners, there are several key fraud prevention measures that can help mitigate losses significantly. They include:
- Hotlines: Most fraud is uncovered by whistle-blowers or an anonymous tip or piece of mail. Hotlines give those who want to report illegal behavior the opportunity to do so.
- Code of Conduct: It is critical for both the board of directors and management to set the “tone at the top” because it really does work. Without it, an entire culture of workplace fraud can take root.
- Education: Employees are a company’s best fraud detection resource. Fraud training for employees and management is important in understanding what constitutes fraud, how it hurts everyone in the company, and how to effectively address and report questionable activity.
- Surprise Audits: Companies that use surprise audits tend to have lower fraud losses. These can be useful in detecting fraud and create a perception that fraud will be detected, thus deterring fraudulent activity.
- Job Rotation/Mandatory Vacations: When an employee stays in the same position for a long period of time and has few absences, an opportunity exists for that employee to design and commit fraud schemes. Requiring employees to rotate jobs periodically and take annual vacations while others perform their duties makes it more difficult to conceal fraud schemes.
- Background Checks: A thorough check, and double-check, of an applicant’s job history and education, and a follow up with references, could disclose false or undisclosed information that could potentially indicate a red flag. The same scrutiny should be applied to new and existing suppliers and customers.
Although we all like to think fraud only happens to someone else, we see it many times in the engagements we perform. As long as opportunities exist, there will be those who find ways to try and personally gain through the deliberate misuse of company resources or assets. Implementing the fraud prevention ideas discussed above, as well as other measures, will help protect your company from substantial losses. Please contact us if you need assistance in developing a fraud prevention and detection plan.
Cooperatives and Current Year Earnings
By: Dennis Gardiner, Partner | email
What are you going to do with this year’s earnings?
We continue to have discussions, at all levels, with our cooperative clients on how to handle current year earnings. We have been attempting to have these discussions long before fiscal year-ends so that management has some direction from the board on how they would like to see it handled.
We have been laying out some of the options available to cooperatives at the end of the year. These include:
• Qualified patronage allocations
• Non-qualified patronage allocations
• Keeping or allocating the benefits of Section 199
• Using bonus depreciation, or not.
Any one, or any combination of these, can be used at year-end to distribute earnings or to mitigate tax liabilities. In fact, the number of options can be confusing, and require analysis as to the impact on current and future year decisions.
Our main focus has been the built-up retained earnings that so many of our cooperative clients have. As we have asked before, how much is too much? Unfortunately, we have not answered that question yet. Obviously, every coop is going to be different.
The dilemma is that Section 199 and bonus depreciation are effective ways to mitigate taxes, but they tilt the imbalance in member’s equity further towards retained earnings. We are trying to address this with our coop clients so that decisions are made with an understanding of how they affect members in the current and future years.
Furthermore, we are exploring ways to address one of the central concerns we have heard, which is, “what happens if the coop were to be sold, or some company were to come in to try to buy the coop?” The solution to this may take revisiting articles of incorporation and by-laws, working with legal counsel and analyzing how retained earnings has grown to today’s levels.
Please contact us at your convenience to discuss what options your coop has, how to present the choices the board will have at year-end, and the effects of those choices.
Big GAAP versus Little GAAP
By: Dennis Gardiner, Partner | email
The Financial Accounting Foundation, FASB’s parent organization, was recently presented a report which recommends changes to the future of accounting standard setting for private companies, including a separate standard-setting board. It is believed that exceptions and modifications to GAAP for private companies is a better response to the needs for the private company sector.
Under the recommendations, a separate private company standards board would be established to make exceptions and modifications for both new and existing standards. FASB will also need to define what differentiates private companies from public companies.
We will keep you posted as we learn more.