Accountant's Audits Of Retirement Plans

Author:Mr Frederick Reish
Profession:Drinker Biddle & Reath LLP

If your plan is large enough to require that its financial statements be audited (which generally means that you have over a 100 eligible employees), in the next month or two your accountants will be asking about your procedures for handling the 408(b)(2) disclosures by your "covered" service providers. That raises an obvious question: what is the "right" answer?

Before answering the question, let me set the context. Your covered service providers are required to give you - as the responsible plan fiduciary, or RPF - written disclosures about their services, status as fiduciaries, and compensation. The "RPF" is the person or persons who have the authority to hire service providers for your plan; typically, that is the plan committee. (For ease of reading, we refer to "plan sponsor".) "Covered" is a defined term in the 408(b)(2) regulation, but for our purpose, the best approach is to assume that all of your plan's service providers are covered, unless you know that they are not. Covered service providers include, for example, your investment advisors, financial advisors, brokers, recordkeepers, bundled providers, investment consultants, and so on. On the other hand, your attorneys, accountants and actuaries are not covered service providers - unless they receive indirect compensation, that is, compensation from anybody other than the plan or the plan sponsor.

Plan sponsors, in their fiduciary capacity, have had two distinct duties related the 408(b)(2) disclosures. The first is to obtain the disclosures and make sure that they are adequate. The second is to review the disclosures and determine that, among other things, the compensation of the service providers is reasonable.

So, what should you say to the accountants? The best answer . . . the disclosures have been compared to the requirements in the 408(b)(2) regulation and, based on that comparison, the committee members have made a reasonable and good faith determination that the disclosures are complete. It would be helpful to provide the accountants with a written copy of the comparison of the disclosures to the requirements of the regulation. To help our clients form that "reasonable and good faith belief ", we have developed a checklist based on the...

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