1. By Michael Lawrance, CPA August 14, 2013

2.  The views in this presentation do not necessarily reflect that of KPMG LLP or any of its subsidiaries or affiliates.

3.  Defined Contribution Plans (401(k), 403(b), ESOP’s, etc.)  Defined Benefit Plans  Health & Welfare Plans (focused on 401(k) for this presentation)

4.  Limited scope – ERISA Section 103(a)(3)(c ); investment information certified by a bank or similar institution or by an insurance carrier that is regulated supervised, and subject to periodic examination by a state or federal agency. ( generally, the trustee or custodian of the plan)  Full scope – Auditor issues an opinion which includes the assertions for investments.

5.  Materiality – Often based on the Net Assets Available for Benefits  Net Assets Available for Benefits is generally more relevant to the users (plan participants & the Department of Labor) than other accounts/measures (contributions, benefit payments, plan loans, etc.)

6.  Significant Accounts  Accounts that there is a reasonable possibility that such could contain a material misstatement that has a material effect on the financial statements  In 401(k)plans, this often includes ( but is not limited to ):  Contributions, Employee and Employer  Benefit Payments  Investments

7. Understand:  Entity Level Controls – (COSO framework)  Processes - that impact significant accounts (e.g., payroll processing, pay rate authorization, time cards/hours reporting, new hire process, termination/retirement process)

8.  Events that can effect the plan  Plan termination  Plan merger/spin-off  Mass layoffs  Potential partial plan termination

9.  Custodial  Record keeper  Payroll  Type I (demonstrates understanding of the process)  Type II (same as Type I plus expresses an opinion on the operating effectiveness of controls that govern the processes)

10.  Plan Document – Governs the operation of the plan.  Determines  who can participate,  when participation can occur,  what can be contributed,  the circumstances for which a person is eligible to receive a benefit payment

11.  The procedures mentioned are an illustrative but not exhaustive list of procedures performed during a standard 401(k) plan audit

12.  Contributions  Employee  Employer  Benefit Payments  Investments

13.  For a sample of participants (often from payroll and participant statements):  Test eligibility to participate (often a service and age requirement)  Examine source documents (I-9, employee application, etc.) to determine the date of hire and/or date of birth  Determine whether the date of hire and/or date of birth allowed the employee to participate in the plan based on the provisions of the Plan Document

14.  For a sample of non-participants (generally pulled from payroll):  Determine that the employee is not participating due to:  1) employee does not meet eligibility requirements or,  2) employee did not choose to participate in the Plan  Examine election not to participate

15.  For a sample of participants (often from payroll and participant statements); select pay periods and:  Determine whether deferral election (% or $ amount) was properly applied to the participant’s eligible compensation (based on Plan Document) for the payroll period  Examine Enrollment Forms, Deferral Change Forms, Confirmation with Participant, note consistency between deferral election per record keeper and that used in payroll  Example: $1,000 eligible compensation X 10% deferral = $100 employee contribution for the pay period

16.  For a sample of participants (often from payroll and participant statements); select pay periods and:  Determine whether the employer match was properly applied to the participant (often a fixed match specified in the plan document applied to the employee contribution)  Example: $1,000 eligible compensation X 10% deferral X 50% employer match = $50 employer contribution for the pay period

17.  Reconcile Employee and Employer Contributions from Payroll to Record keeper / Custodial reports  Check remittances for timeliness Per Bank Statement Per Custodian Withholding Date AmountPosting date Amount 01/01/xx$25,00001/02/xx$25,000 02/01/xx25,00002/01/xx25,000 03/01/xx25,00003/02/xx25,000 Total$75,000Total$75,000 Per Payroll EE Contr.$50,000 ER Contr.$25,000 Total$75,000

18.  For a sample of participants who received a benefit payment(s) during the period:  Select different types of payments based on reasons allowed in the Plan Document (Termination, Retirement, Hardship, Death, Disability, QDRO)  Determine Eligibility for distribution  Termination/Retirement – Personnel Action Form/ Payroll Records  Hardships – Eviction notice, Foreclosure notice  Death – Death Certificate/Physician’s Statement  QDRO – Executed court order

19.  Verify benefits were received  Examine cancelled check, wire advice, confirm with participant  Verify vesting provisions of Plan Document were followed  Determine if income tax was appropriately withheld (if applicable)  Make sure participant account balance is zero if a full payout was requested

20.  For Limited Scope:  Agree investment balances from certified custodial/trustee statements to the financial statements  Determine whether the Fair Value Level disclosures for investments in the financial statements are appropriate  Determine that participants receive an allocation of investment income/loss and invested in the chosen investment vehicles

21.  For Full Scope:  Same as limited scope; plus  Confirm the existence of the units/shares  Price test the fair value of period end values for the investments (compare to a pricing source)  Compare the prices of a sample of purchase and sales transactions noted in the trustee/custodial statements to price sources  Determine that investment income is reasonable by comparing reported plan returns for investments to published returns

22.  Depends on:  How quickly information is provided  How experienced the auditor is with benefit plans  What standards are being used (AICPA, Firm standards above AICPA standards, etc.)