JOHN T

JOHN T. CHEEK, CPA

Update on Benefit Plans

10/06/02

Audit Quality: An ERISA audit is different from the average financial statement audit, and the DOL says that too many CPAs don’t understand the differences. Up to one third of CPA’s don’t follow audit standards or ERISA disclosure requirements. Findings of PWBA’s Office of the Chief Accountant are at www.cpaspan.com/assessing.htm

Enron: In a "friend of the court" brief supporting a class action suit by participants, the DOL takes a strong stand on ERISA’s fiduciary responsibility standards. The brief makes the following legal points: (1) fiduciaries responsible for monitoring the Administrative Committee have a duty under ERISA to ensure that the Administrative Committee was properly performing its duties, and that it had the tools and information necessary to do so; (2) fiduciaries may not deceive plan participants or allow others to do so, and thus have the obligation to take appropriate action to protect plan assets, which may include investigating, disclosing the true facts, and stopping further investment in company stock, as prudence would dictate; (3) even if the fiduciaries had "inside information", nothing in the federal securities laws would have prevented them from taking some action as fiduciaries to protect the plans, which could have included a public disclosure of the true facts, a decision to suspend further purchases of the stock, or a disclosure to the appropriate regulatory agencies; (4) fiduciaries have an obligation to ensure that plan investments in employer stock are prudent, even in an ESOP that, by its nature, contemplates investment in employer stock; (5) directed trustees cannot follow directions that they know or, because of "red flags," should know are imprudent or otherwise violate ERISA; (6) the participants may recover monetary relief if they can prove that the fiduciaries breached their duties with regard to a cash balance plan; and (7) even if it is a non-fiduciary, a service provider, including an accounting firm, may be liable for equitable relief if it knowingly participated in the fiduciary breaches of others.

Participant Notice: Underfunded plans that are required to pay the PBGC Variable Rate Premium ("VRP") are also required to issue a Participant Notice regarding the plan’s funding status. The Job Creation and Worker Assistance Act provided some relief from the VRP by substituting a higher interest rate in the calculations. Now PBGC points out that, if you avoid the VRP by using the higher interest rate, you do not avoid the requirement for a Participant Notice. No, this was not intentional, this is a mistake in the law that should be corrected by next year. The Participant Notice is due two months after the due date of Form 5500. A decision chart and example wording is available-- call me for more info.

Deductible mileage rates down: effective 1/1/03, the deduction for business mileage is 36 cents, down from 36.5 cents in 2002. The deduction for medical and moving purposes is 12 cents a mile, down from 13 cents. The charitable rate, which is set by law, remains at 14 cents a mile.

New Postings at cpaSpan.com

DOL Troubleshooters Guide to Filing ERISA Annual Report (Form 5500): PDF available for download: part 1 or part 2

IRS Employee Plan News Fall 2002 Issue- 16 page PDF available for download

TSB-A-02(9) : Receipt of demutualization proceeds = unrelated business in NYS?

I have 25 years experience with ERISA audits. To talk about your 5500 audit, call me at 585-226-2621.

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