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Is The ERISA Advisory Council? Section 512 Of ERISA Gives
What exactly is the ERISA Advisory Council?
Section 512 of ERISA gives for the establishment of an Advisory Council on Employee Welfare and Pension Benefit Plans, generally known as the ERISA Advisory Council. The duties of the council are to advise the Secretary of Labor on problems crucial to the administration of ERISA, and submit recommendations relating to the Secretary's functions under ERISA. The Council consists of 15 members appointed by the Secretary of Labor, and contains representatives of employee organizations, employers, the general public, and the accounting profession. Typically, the Council focuses on three to 4 issues every single year. For each problem, the Council defines the concern to investigate, takes testimony from witnesses, and submits a report of findings and recommendations towards the Secretary of Labor.
What does this study include?
Based on the Problem Paper for this project, the Council's aim is usually to make recommendations towards the Secretary of Labor with respect to ERISA's audit and economic reporting specifications; the desired outcome is always to improve the Department of Labor's oversight of employee benefit strategy audits. The Council plans to study the following:
How auditors work with plans to comply with ERISA § 103;
The advantages and disadvantages of the audit requirement; and
The current monetary reporting model under ERISA, and regardless of whether that model can and should be modified and to what extent.
In its work on the audit and financial reporting needs, the Council will specifically be evaluating limited scope audits. In the conclusion of the study, the Council will make recommendations to the Secretary of Labor, which might call for modifications towards the existing financial reporting model, auditing standards for benefit plans, or both.
AICPA Testimony?
On June 29, 2010, Marilee Lau, Chair of the American Institute of Certified Public Accountants (AICPA) Employee Benefit Strategy Audit Quality Center Executive Committee, and Michele Weldon,Chair of the AICPA Employee Benefit Plans Expert Panel, testified on behalf of the AICPA2. In its testimony, the AICPA discussed key changes in employee benefit plans from the time ERISA was enacted in 1974 towards the present day.
Comparison of Employee Benefit Plans – Then and Now
Plans in 1974 –
Primarily defined benefit and well being & welfare plans
Traditional investment portfolio consisting of publicly traded equities and bonds
Investments "physically held" by trustee or custodian
Plans today –
Primarily 401k plans with employees having their own money at stake
Often have "hard-to-value" investments, including private equity funds, hedge funds, and nonmarketable derivatives
Sub-custodians hold a plan's investments in separate or omnibus accounts
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The AICPA testimony focused on the key areas as follows: the limited scope audit exemption, 403(b) strategy reporting and audit requirements, and health and welfare strategy reporting and audit specifications. Limited Scope Audit Exemption ERISA's limited scope audit exemption allows the program administrator to instruct the independent auditor not to perform any auditing procedures with respect to investment information prepared and certified by a qualified institution which acts as trustee or custodian of plan investments or their agent. The trustee or custodian is only required to certify as to whether or not the information provided towards the strategy sponsor is complete and accurate based on information obtained from their ordinary business records; as a result, the values reported on statements are the best available information in their systems at the time of the report. In the case of "hard-to-value" investments, the report usually consists of a value provided by a third-party broker or fund company, which is not necessarily fair value, and not necessarily the value as of the year-end of the plan (i.e., the reported value might be as of the end of the prior quarter). Unless the strategy administrator has engaged the trustee or custodian to provide asset valuation services, the trustee or custodian will not verify the accuracy and validity of the valuation sources. When ERISA was enacted, most benefit plans held investments for which there was a readily determinable fair value, and so the best available information in their records was typically reliable.
The AICPA recommended that the Secretary of Labor seek legislative repeal of the limited scope audit exemption, or at a minimum, allow the election to be made only for assets whose present value is based on quoted market prices for identical assets. In the event that the limited scope option is not repealed, the AICPA also made recommendations dealing particularly with the use of certifications when "alternative" or "hard-to-value" assets are held by a Plan. Finally, the AICPA recommended that the Secretary of Labor require that those electing the limited scope audit exemption be required to consist of the certifications with their Form 5500 filings, which would subject them to review by the Department of Labor.
Section 403b program reporting and audit needs
ERISA-covered 403(b) plans will be subject to the same Form 5500 reporting and audit needs as 401(k) plans effective with the 2009 program year. Many of these plans have existed for decades, and with no previous audit requirement, there are not adequate books and records to support a "clean" audit opinion. Due to the nature of this limitation of the audit scope, many of these plans will face receiving qualified, adverse, or disclaimers of opinion for decades. The AICPA therefore recommended that the Department of Labor allow such 403(b) plans to prepare their financial statements on a regulatory basis of accounting. This recommendation would require the development of a regulatory basis of reporting in order to provide a consistent monetary reporting framework. As an alternative, the AICPA suggested that the Secretary of Labor could require plans to have an independent auditor perform an agreed-upon-procedures engagement to test certain elements and compliance matters.
Health and welfare program reporting and audit specifications
In the case of health and welfare plans, the AICPA focused on the limited usefulness of their monetary reporting as compared towards the cost. Particularly, useful information concerning the plan's ability to pay benefits is not provided; the plans are not required to be funded, nor are strategy sponsors usually required to fund or maintain benefits. The ultimate obligation to pay benefits rests with the strategy sponsors, and therefore one must look to the program sponsor's economic statements to evaluate the likelihood of benefits being funded. Further, the AICPA noted that the costs of these audits are frequently significantly higher than for other types of benefit plans due to the complexities of the well being care systems. The AICPA recommended that the Secretary of Labor evaluate whether the costs associated with these audits for single-employer plans effectively meet the needs of users of the financial statements. As an alternative, the AICPA encouraged the use of agreed-upon-procedures.
Other recommendations
In addition towards the important areas of focus above, the AICPA made other recommendations, including:
The Department of Labor ought to require all ERISA auditors to participate in a practice monitoring program, such as peer review, as well as, meet additional minimum qualification needs such as those established for the Employee Benefit Plan Audit Good quality Center;
The DOL should continue referring deficient audits towards the AICPA Ethics Division and state boards of accountancy, rather than the DOL having a new enforcement role over strategy auditors; and
The DOL really should not establish a new reporting model or auditing standard framework for ERISA plans.
Due to the limited time in the hearing to discuss the subject matter and the AICPA's recommendations, the AICPA also recommended that a special joint task force be established with the accounting profession to more fully consider these problems and solutions.
Next Up
In accordance with the DOL website, the next meeting of the ERISA Advisory Council is scheduled for August 31 through September 2, 2010 at the U.S. Department of Labor in Washington, DC. The Council will present its findings and recommendations towards the Secretary or the Secretary's designated representative in the final meeting of the council year, which ends on November 14.
Employee Benefits – Choosing the Best Packages.txt
for more on Employee Benefits Advisor and Reduce Staff Turnover and {Staff B} see our website
IE Weldon End of Year BBQ 1999 - Part 1
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