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Delap, LLP
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Breaking News: Congress Passes the Tax Increase Prevention Act of 2014

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The Conversation We Should Be Having About Corporate Taxes http://buff.ly/1svg5dh The corporate inversion...

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Top 3 Employee Benefit Plan Operational Violations

Have you ever wondered what the auditors typically find in terms of plan violations? Our team at Delap has put our heads together and from our collective knowledge has identified what we consider to be the top 3 operational violations found during an employee benefit plan audit.

1.  Untimely remittance of participant contributions

The Department of Labor (DOL) requires that participant contributions be remitted to the plan as of the earliest date that the contributions can be segregated from general assets, but no later than the 15th business day of the month following the month in which the contribution is withheld.

A common misconception is that the 15th business day is a safe harbor, when in reality – it is not! Generally, if the Company is able to segregate assets for federal tax withholdings within one day of paying employees, we would anticipate similar timing when looking at remitting contributions to the Plan.

The most common situation we encounter is this: an employer will have well designed payroll processes, including the consideration of timely remittances. But once or twice a year we notice a delay in the remittance of employee contributions. Upon further investigation it is determined that the delay is due to an employee being absent due to vacation. The DOL looks for consistency and historical timing, therefore we do as well. The absence of an employee due to a vacation most likely did not prevent payroll from processing, so it should not have an impact on the remittance of employee contributions either. Proper planning and cross training of your team is a simple solution to untimely remittance.

2.  Compensation

The definition of compensation for your plan may be as simple as W-2 wages; however, it could also be a highly complicated formula. Misunderstanding the definition of compensation and miscommunication of the definition are common violations.

Compensation, as defined by the plan document, can be used to calculate participant deferrals, employer contributions, benefit accruals and tax non-discrimination tests. It is essential to understand that these definitions can be different.

Additionally, newly eligible employees may not be eligible to defer on their annual compensation. Therefore compensation, in terms of calculating an employee match, may need to be manually adjusted to calculate the match in accordance with the plan document.   Ensuring that your team of professionals are performing calculations for the plan with a solid understanding of the plan’s definition of compensation is an easy way to avoid violations.

3.  Eligibility

Do you have different groups of employees, part-time vs. full-time, maybe? Or did your Company recently acquire another Company, introducing a new group of employees to the plan? These different groups of employees may actually have different eligibility requirements. It can be confusing and difficult to track everyone’s eligibility status. However if you hold the fiduciary responsibility, part of your responsibilities are to properly notify employees when they are eligible to participate in the plan.

By understanding the definition of years of service for eligibility purposes, the plan entry dates, and different eligibility provisions for employee and employer contributions as defined by the plan document, this common violation can be prevented.

So what does this mean for your company’s employee benefit plan? Ultimately, you can lower the chances of violating your Company’s plan document by learning what the common violations are and educating your team on them. Additionally, all plan violations require the Company to make the participant whole, including corrections to employer matching contributions, lost earnings, and interest.

Can’t get enough about employee benefit plan audits?  Our team of nerds at Delap is happy to answer any questions you have regarding tax, audit, accounting, or finance questions. Reach out today!

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How to Polish Up Your 401(k) Plan for Potential IRS Examinations

We know that getting your 401(k) Plan audited isn’t the most exciting part of running your business. Fortunately, our team of audit nerds at Delap is passionate about mitigating risk by performing high-quality audits for our clients. As a result, we stay up on the latest news from the IRS by attending conferences and continuing education training events.

Recently our team attended a 401(k) audit conference that gave us some insight into what the IRS is focusing their examination efforts on in 2014. Due to budget constraints, the IRS has shifted their 5500 examination focus to the Plan’s internal control environment. To start, the IRS will assess the Plan to determine whether it is being properly monitored for controls related to:

- Timely plan amendments
- Whether the plan amendments & discrimination testing results are being reviewed
- If there has been a change in payroll providers

By first learning the answers to these questions, the IRS can then decide whether or not they need to dig deeper into examining the 401(k) Plan. The hope is that the IRS can eliminate unnecessary examinations moving forward.

So what does this mean for your company’s 401(k) Plan? By learning the answers to the questions the IRS will initially address in their examination of your Plan, you can lower the chances of further examination. The IRS has even provided helpful resources to better guide you in being prepared for a potential examination. See the links below to check out these resources to help polish up your 401(k) Plan.

Can’t get enough about 401(k) Plan audits? Our team of nerds at Delap is happy to answer any questions you have regarding this or any other accounting challenges you are facing. Reach out today!

http://www.irs.gov/Retirement-Plans/Internal-Controls-Protect-Your-Retirement-Plan

http://www.irs.gov/Retirement-Plans/Have-You-Had-Your-Retirement-Plan-Check-Up-This-Year

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Benchmarking Your Firm’s Employee Benefit Plan

Are the fees paid by your company’s 401(k) plan reasonable? Consider the following:

• In August 2013, a U.S. District Court ordered a 401(k) plan’s fiduciaries to restore $321,000 to plan participants after concluding that the fiduciaries breached their fiduciary duties and paid excessive service provider fees to the plan’s third-party administrator.

• In July 2013, a U.S. District Court approved a $35 million settlement involving a company and its 401(k) participants alleging, among other things, breaches of fiduciary duty, and payment of excessive service provider fees.

• In March 2013, a U.S. Court of Appeals ruled that a 401(k) plan’s fiduciaries breached their fiduciary duties by including more expensive share classes of certain retail mutual without first conducting an investigation into available institutional share classes of the same funds.

In one of these court opinions, the court stated that the plan’s fiduciaries had a fiduciary duty to know what the Plan was paying in compensation and fees. In relying exclusively on the third-party administrator’s own spreadsheet for that information without obtaining third-party verification, they breached that duty, causing the Plan to pay excess fees. Rather than investing the time and effort to keep tabs on what the Plan was paying, the fiduciaries effectively took the third-party administrator at his word and even went so far as to actively deflect other potential third-party administrators – including Fifth Third Bank – on the now discredited theory that the current third-party administrator offered a better deal for Plan participants.

In order to comply with the Employee Retirement Income Security Act (ERISA) and other Department of Labor regulations regarding 401(k) plans, when the fees for services are paid out of plan assets, fiduciaries need to understand the fees and expenses charged and the services provided. While the law does not specify a permissible level of fees, it does require – under Section 408(b)(2) of ERISA – that fees charged to a plan be “reasonable.”

For example, in the third case above, the court observed that “this might have been a different case” had defendants shown that the advisor “engaged in a prudent process” by presenting evidence of the advisor’s specific recommendations about the funds, the scope of the advisor’s review, whether the advisor considered both retail and institutional share classes, or what questions or steps were used to evaluate those recommendations.

Failure to comply with these regulations can even result in personal liability to the responsible fiduciaries. So what can a plan fiduciary do to determine that fees paid from a 401(k) plan’s assets are reasonable? An increasingly common tool is the use of a periodic benchmarking analysis.

A benchmarking analysis typically involves engaging a third-party consultant to evaluate a plan’s expenses as compared to those of a “peer group” of similar plans. These reports will evaluate expenses on both an aggregate level and broken down into specific categories (such as recordkeeper, investment advisor, and investment manager fees). Fees are usually also evaluated for each of the plan’s individual investments (for example, by comparing each mutual fund’s expenses to the average fees paid by peer group plans for mutual funds in the same category). In addition, these reports frequently compare a plan’s provisions (such as availability of a Roth option, automatic enrollment, etc.) and participant success measures (such as employee participant rates) to the peer group.

While a benchmarking analysis won’t provide a definitive “yes or no” answer as to the reasonableness of a plan’s expenses, is can be a crucial tool in demonstrating a fiduciary’s due diligence in evaluating these expenses.

Still have more questions? Reach out to your CPA to learn more.

Delap LLP is one of Portland’s largest local tax, audit, and consulting accounting firms, located in Lake Oswego, Oregon.

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Employee Benefit Plans & Responsibilities of Plan Fiduciaries

Employers who sponsor employee benefit plans – such as 401(k) and other retirement plans – have a powerful tool to help attract and retain talented people, to aid employees in investing for their retirements, and to potentially obtain tax benefits for both the employer and employee.

However, administering a retirement plan and managing its assets imposes specific responsibilities on employers. To meet their responsibilities as plan sponsors, employers need to understand some basic rules, specifically the Employee Retirement Income Security Act (ERISA). ERISA sets standards of conduct for those who manage an employee benefit plan and its assets (called fiduciaries).

Many of the actions involved in operating a plan make the person or entity performing them a fiduciary. For example, ERISA generally defines a fiduciary as a person who either:

(1) Exercises discretionary authority or control over the management of an employee benefit plan or the disposition of its assets,

(2) Gives investment advice about plan funds or property for a fee or compensation or has the authority to do so,

(3) Has discretionary authority or responsibility in plan administration, or

(4) Is designated by a named fiduciary to carry out fiduciary responsibility.

Since using discretion in administering and managing a plan or controlling the plan’s assets is a determining factor, it’s important to note that fiduciary status is based on the functions performed for the plan, not just a person’s title. A plan’s fiduciaries will typically include the trustee, investment advisers, all individuals exercising discretion in the administration of the plan, all members of a plan’s administrative committee (if it has such a committee), and those who select committee officials. Attorneys, accountants, and actuaries generally are not fiduciaries when acting solely in their professional capacities. The key to determining whether an individual or an entity is a fiduciary is whether they are exercising discretion or control over the plan.

A fiduciary’s responsibilities generally include managing plan assets solely in the interest of participants and beneficiaries (with the care a prudent person would exercise) and diversifying investments to minimize the risk of large losses unless it is clearly not prudent to do so. Specifically, the Department of Labor says that plan fiduciaries are responsible for:

• Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;

• Carrying out their duties prudently;

• Following the plan documents;

• Diversifying plan investments; and

• Paying only reasonable plan expenses.

This is all very significant, not only because a fiduciary has a moral obligation to the plan’s participants, but also because under ERISA, a plan fiduciary is personally liable to the plan for losses resulting from a breach of his or her fiduciary responsibility. In addition, the fiduciary must restore to the plan any profits realized from the misuse of the plan’s assets. Accordingly, some key fiduciary duties to consider include the following:

• Have a working understanding of the laws that affect your plan.

• Read and understand the plan document, and update the plan document when necessary due to changes in laws or plan operations.

• Formalize and document the process for selecting plan investments.

• Ensure that your plan has an “Investment Policy Statement”, and periodically review it.

• Monitor your plan’s investments on a periodic basis.

• Consider engaging a qualified, independent investment advisor to assist in selecting, monitoring, and replacing investment options.

• Monitor and evaluate the performance of the plan’s service providers.

• Periodically review and evaluate expenses and fees – such as investment expenses and service provider fees – charged to plan to determine if they are reasonable.

• Consider obtaining a “fiduciary benchmarking report” to evaluate the various fees and expenses charged to the plan.

• Establish a process to ensure that all appropriate participant disclosures are made (such as annual required disclosures regarding plan expenses).

• Conduct educational meetings for all employees. Provide information on topics such as how to participate in the plan, saving for retirement, general investment diversification and asset allocation concepts, etc.

• Establish an annual “fiduciary calendar”.

• Purchase a fiduciary bond.

• Fully document all plan-related decisions in writing!

Still have more questions? Reach out to your CPA to learn more.

Delap LLP is one of Portland’s largest local tax, audit, and consulting accounting firms, located in Lake Oswego, Oregon.

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Benchmarking Your Firm’s Employee Benefit Plan

Are the fees paid by your company’s 401(k) plan reasonable? Consider the following:

• In August 2013, a U.S. District Court ordered a 401(k) plan’s fiduciaries to restore $321,000 to plan participants after concluding that the fiduciaries breached their fiduciary duties and paid excessive service provider fees to the plan’s third-party administrator.

• In July 2013, a U.S. District Court approved a $35 million settlement involving a company and its 401(k) participants alleging, among other things, breaches of fiduciary duty, and payment of excessive service provider fees.

• In March 2013, a U.S. Court of Appeals ruled that a 401(k) plan’s fiduciaries breached their fiduciary duties by including more expensive share classes of certain retail mutual without first conducting an investigation into available institutional share classes of the same funds.

In one of these court opinions, the court stated that the plan’s fiduciaries had a fiduciary duty to know what the Plan was paying in compensation and fees. In relying exclusively on the third-party administrator’s own spreadsheet for that information without obtaining third-party verification, they breached that duty, causing the Plan to pay excess fees. Rather than investing the time and effort to keep tabs on what the Plan was paying, the fiduciaries effectively took the third-party administrator at his word and even went so far as to actively deflect other potential third-party administrators – including Fifth Third Bank – on the now discredited theory that the current third-party administrator offered a better deal for Plan participants.

In order to comply with the Employee Retirement Income Security Act (ERISA) and other Department of Labor regulations regarding 401(k) plans, when the fees for services are paid out of plan assets, fiduciaries need to understand the fees and expenses charged and the services provided. While the law does not specify a permissible level of fees, it does require – under Section 408(b)(2) of ERISA – that fees charged to a plan be “reasonable.”

For example, in the third case above, the court observed that “this might have been a different case” had defendants shown that the advisor “engaged in a prudent process” by presenting evidence of the advisor’s specific recommendations about the funds, the scope of the advisor’s review, whether the advisor considered both retail and institutional share classes, or what questions or steps were used to evaluate those recommendations.

Failure to comply with these regulations can even result in personal liability to the responsible fiduciaries. So what can a plan fiduciary do to determine that fees paid from a 401(k) plan’s assets are reasonable? An increasingly common tool is the use of a periodic benchmarking analysis.

A benchmarking analysis typically involves engaging a third-party consultant to evaluate a plan’s expenses as compared to those of a “peer group” of similar plans. These reports will evaluate expenses on both an aggregate level and broken down into specific categories (such as recordkeeper, investment advisor, and investment manager fees). Fees are usually also evaluated for each of the plan’s individual investments (for example, by comparing each mutual fund’s expenses to the average fees paid by peer group plans for mutual funds in the same category). In addition, these reports frequently compare a plan’s provisions (such as availability of a Roth option, automatic enrollment, etc.) and participant success measures (such as employee participant rates) to the peer group.

While a benchmarking analysis won’t provide a definitive “yes or no” answer as to the reasonableness of a plan’s expenses, is can be a crucial tool in demonstrating a fiduciary’s due diligence in evaluating these expenses.

Still have more questions? Reach out to your CPA to learn more.

Delap LLP is one of Portland’s largest local tax, audit, and consulting accounting firms, located in Lake Oswego, Oregon.

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Very helpful tips, +Scott Buehler 
How to make your spreadsheets less terrible. #excel #tables
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Gold medals could costs Americans $9,900 in taxes! | Delap CPA

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"Oregon revenue forecast: Fall in corporate income tax revenue offset by increase in personal income tax"
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