New Regulations and Standards
Auditors and plan fiduciaries need to stay educated on industry developments and changes. Over the last couple of years, several new standards and regulations have been made effective. Below are listed a few of the major changes.
The Financial Accounting Standards Board (FASB) Accounting Standard Update (ASU) No. 2010–25, was issued in September 2010 to amend generally accepted accounting principles related to how loans to participants should be classified and measured by defined contribution plans. The previous standard required loans to participants to be classified as plan investments which are generally measured at fair value. The new standard requires loans to participants be classified as notes receivable from participants and measured at their unpaid principal balance plus any accrued but unpaid interest.
The AICPA has updated the reporting on controls for service organizations from that of a single, antiquated standard (SAS 70) to a new Service Organization Control Report (SOC) framework. This occurred with the adoption of the new standard – Statement on Standards for Attestation Engagements (SSAE) No. 16. SSAE 16 had an effective date of June 15, 2011 with earlier implementation permitted.
ERISA section 408(b)(2) establishes specific disclosure obligations for plan service providers to ensure that responsible plan fiduciaries are provided the information they need to make better decisions when selecting and monitoring service providers for their plans. The final rule requires covered service providers to provide fiduciaries with the information they need to :
- Assess reasonableness of total compensation, both direct and indirect, received by the service provider , its affiliates, and/or subcontractors;
- Identify potential conflicts of interest; and
- Satisfy reporting and disclosure requirements under Title I of ERISA .
The final regulation was effective for both existing and new contracts or arrangements between plans and service providers as of July 1, 2012. Service providers not in compliance as of July 1, 2012, will be subject to the prohibited transaction rules of ERISA section 406 and Internal Revenue Code section 4975 penalties.
ERISA 404(a) requires the disclosure of certain plan and investment-related information, including fee and expense information, to participants and beneficiaries in participant-directed individual account plans like 401(k) plans. This rule will ensure that participants who direct their plan investments have access to the information they need to make informed decisions regarding the investment of their retirement savings, including fee and expense information.
The final regulation requires plan fiduciaries to give participants quarterly statements of plan fees and expenses deducted from their accounts and to give workers core information about investments available under their plan including the cost of these investments. The final regulation also requires plan fiduciaries to present information in a format that makes it easier for participants to comparison shop among the plan’s investment options.