Reviewing employee benefit plan financial statements can be a challenge. Plan management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). Before you sign the management representation letter from your external auditors, consider reviewing the financial statements using the handy tips in this guide to help avoid some of these common errors.
Statements of Net Assets Available for Benefits
- This statement is required to be comparative. Confirm that two years are presented.
- The classification of investments valued at fair value and contract value should be presented as separate line items on the financial statements and not be combined.
- You should disclose investments as participant-directed and/or nonparticipant-directed (can be in the footnotes) if the plan allows for both options.
- Notes receivable and investments should reconcile to the supplemental schedule of investments. There could be differences between the values reflected in the financial statements and the Form 5500 as described below.
Notes Receivable From Participants: Form 5500 Differences Often Overlooked
- Loans that have been deemed distributed on an outstanding loan list are a plan asset until a distributable event, such as employment termination, death, or disability, has occurred.
- The Form 5500 Schedule H indicates that a participant loan that has been deemed distributed during the plan year should be reported as a benefits paid expense.
- A reconciliation footnote or narrative identifying the reason for the difference will be required in this situation.
Forfeitures
- Forfeitures should remain as a plan asset and be combined in the appropriate investment or cash classification.
- In the footnotes, disclose the amount of forfeitures available at the end of the year and the amount of forfeitures utilized or allocated during the year, if material to the financial statements.
Accrued Liabilities Not Recorded When Material
Consider if expenses, excess contributions refunded, or payables may need to be accrued within the plan’s financial statements if material.
Related-Party Disclosure
- If the plan sponsor pays any fees, regardless of the amount to a plan trustee or custodian, there should be a disclosure of that fact. Disclose the amount, if material.
- Disclose the related-party managed assets (those managed by asset trustee/custodian).
Supplemental Schedules
- Schedule of assets held (at end of year):
- Participant-directed cost information is not required.
- Party-in-interest investments/providers should be identified on the schedule.
- Schedule of delinquent participant contributions:
- Make sure participant contributions deemed late are included, no matter how small. The total amount presented on this schedule should agree to the Form 5500.
- Participant loan repayments are evaluated on the same basis as employee contributions and are frequently remitted at the same time. Be sure to include them in your evaluation of timeliness.
- A narrative disclosure of the late contributions should be included in the footnotes.
- You need to confirm the appropriate box(es) are checked if your plan did not correct through the Voluntary Fiduciary Correction Program (VFCP).
- This schedule needs to be presented each year until fully corrected (through the year lost earnings are remitted).
- The format for this schedule is from the U.S. Department of Labor (DOL) and shouldn’t be altered.
Going over your employee benefit plan financial statements for these common errors can help your organization comply with regulations under GAAP. If you have any questions or need assistance, please contact a professional at Forvis Mazars.