Home » 2011 Issues » February 09, 2011 » DCB-06-11-00003-P Conduct of an Annual Audit of Financial Statements or an Administrative Report
DCB-06-11-00003-P Conduct of an Annual Audit of Financial Statements or an Administrative Report
2/9/11 N.Y. St. Reg. DCB-06-11-00003-P
NEW YORK STATE REGISTER
VOLUME XXXIII, ISSUE 6
February 09, 2011
RULE MAKING ACTIVITIES
DEFERRED COMPENSATION BOARD
PROPOSED RULE MAKING
HEARING(S) SCHEDULED
I.D No. DCB-06-11-00003-P
Conduct of an Annual Audit of Financial Statements or an Administrative Report
PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:
Proposed Action:
Amendment of section 9005.1 of Title 9 NYCRR.
Statutory authority:
State Finance Law, section 5
Subject:
Conduct of an annual audit of financial statements or an administrative report.
Purpose:
To provide an alternative to smaller deferred compensation plans to meet the annual audit requirement.
Public hearing(s) will be held at:
10:00 a.m., March 25, 2011 at Rm. 124, Empire State Plaza Concourse North, Albany, NY.
Interpreter Service:
Interpreter services will be made available to hearing impaired persons, at no charge, upon written request submitted within reasonable time prior to the scheduled public hearing. The written request must be addressed to the agency representative designated in the paragraph below.
Accessibility:
All public hearings have been scheduled at places reasonably accessible to persons with a mobility impairment.
Text of proposed rule:
Section 9005.1 is repealed and a new Section 9005.1 is added to read as follows:
Section 9005.1 Financial Statements, Auditing and Administrative Procedures Reports. The board, with respect to the State plan, and the deferred compensation committee, with respect to any other plan, shall be responsible for causing such plan to be in compliance with this Section 9005 for each plan year.
(a) Subject to paragraph (c) of this Section 9005.1, a plan shall be subject to this paragraph (a) for a plan year if the plan has fewer than 100 participants as of the last day of the plan year. If a plan is subject to this paragraph (a) for a plan year, the deferred compensation committee shall:
(1) prepare, or cause to be prepared, for the plan year an unaudited financial statement of the net assets available for benefits and the related statements of changes in net assets available for benefits for the plan year-end; and
(2) engage, or cause to be engaged, in accordance with the requirements of Part 9003 of this Subtitle, a certified public accountant to conduct a review of the plan's activities during the plan year and to produce an administrative procedures report as of the plan year-end, which report shall specify the procedures and methods used and the conclusions reached by such firm of certified public accountants in the examination of each of the following items (and any other additional items as may be required by the deferred compensation committee for the plan):
(i) whether participant account balances, by investment option and in the aggregate as of the plan-year end, as reported by the administrative service agency for the plan, agree to the value of the assets held by the trustee of the plan by investment option and in the aggregate as of plan-year end;
(ii) whether participant deferrals reported by the plan sponsor, by individual participant and in the aggregate, for the plan year agree with the deferrals received by the trustee of the plan for the plan year;
(iii) whether participant deferrals for the plan year were properly authorized and accurately remitted to the trustee of the plan in accordance with the timing and other requirements of the plan document (or industry practice if no direction is provided in the plan document);
(iv) whether the plan properly and separately accounted for pre-tax and, if applicable, designated Roth contributions deferred or contributed for the plan year;
(v) whether maximum contribution limitations and minimum required distribution requirements were properly implemented for the plan year;
(vi) whether participant requests for lump sum and installment benefit distributions for the plan year were properly authorized and processed in accordance with the plan document and contractual provisions (or industry practice, if no direction is provided in the plan document or applicable contracts);
(vii) whether participant requests for unforeseeable emergency withdrawals during the plan year were processed according to written procedures, properly authorized and properly documented;
(viii) whether participant requests for plan loans during the plan year were processed according to written procedures and were properly authorized and documented;
(ix) whether participant requests for deferral amount changes and asset allocation changes for the plan year were processed accurately and in a timely manner in accordance with the plan document and applicable contract provisions (or industry practice, if no direction is provided in the plan document or applicable contracts);
(x) whether all plan-level and participant-level fees for the plan year were disclosed to participants, were allocated in accordance with written procedures and on a uniform basis and were assessed solely to support operations of the plan; and
(xi) whether, for the plan year, employees who were eligible during that plan year to elect to participate in the plan were provided with written notification of the plan and enrollment opportunities.
(3) The specific procedures and methods applied to each item covered by paragraph (a)(2) of this Section 9005.1 shall be determined in the professional judgment of the certified public accountant in accordance with generally accepted industry standards and shall be reviewed with the deferred compensation committee for the plan prior to the firm's examination of the plan.
(b) A plan shall be subject to this paragraph (b) for a plan year if it is the State plan or, subject to paragraph (c) of this Section 9005.1, if the plan has 100 or more participants as of the last day of the plan year. If a plan is subject to this paragraph (b) for a plan year, the board or deferred compensation committee, as applicable, shall:
(1) prepare, or cause to be prepared, a financial statement of the net assets available for benefits and the related statements of changes in net assets available for benefits for the plan year-end, which statements shall be prepared in accordance with Governmental Accounting Standards Board Statement 32, "Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans", or any successor statement thereto; and
(2) engage, or cause to be engaged, in accordance with the requirements of Part 9003 of this Subtitle, a certified public accountant to conduct an audit of the financial statements described in paragraph (b)(1) of this Section 9005.1 in accordance with auditing standards generally accepted in the United States of America.
(c) The following rules shall apply to plans that would otherwise become subject to paragraph (a) or (b) of this Section 9005.1 (or cease to be subject to paragraph (a) or (b) of this Section 9005.1) from one plan year to the next succeeding plan year as a result of an increase or decrease in the number of participants in the plan.
(1) A plan that (i) was subject to paragraph (a) of this Section 9005.1 for a prior plan year and that has complied with the requirements set forth in paragraph (a) above for that plan year and (ii) becomes subject to paragraph (b) of this Section 9005.1 for the current plan year by virtue of having 100 or more participants as of the last day of the current year, may elect to comply with the provisions of paragraph (a) of this Section 9005.1 for such current plan year, and, if such election is made, shall not be subject to the requirements of paragraph (b) of this Section 9005.1 for the current year.
(2) A plan that (i) was subject to paragraph (b) of this Section 9005.1 for a prior plan year and (ii) would be subject, but for the operation of this paragraph (c)(2), to paragraph (a) of this Section 9005.1 for the current plan year by virtue of having fewer than 100 participants as of the last day of the current plan year, shall be required to continue to comply with the provisions of paragraph (b) of this Section 9005.1 for such current plan year and shall not become eligible to utilize the procedures in paragraph (a) of this Section 9005.1 unless.
(3) Example: Plan X has 90 participants as of the last day of Plan Year 1, and accordingly, the deferred compensation committee of Plan X causes the plan to comply with the financial statement and administrative procedures requirements described in paragraph (a) of this Section 9005.1 with respect to Plan Year 1. On the last day of Plan Year 2, Plan X has 110 participants. Plan X may elect to continue to comply with the provisions of paragraph (a) of this Section 9005.1 and will not be subject to the audit requirements of paragraph (b) for Plan Year 2.
(4) Example. Plan Y has 110 participants as of the last day of Plan Year 1, and accordingly, the deferred compensation committee of Plan Y causes the plan to comply with the financial statement and audit requirements described in paragraph (b) of this Section 9005.1 with respect to Plan Year 1. On the last day of Plan Year 2, Plan Y has 90 participants. Plan Y must continue to comply with the provisions of paragraph (b) of this Section 9005.1 and will not be permitted to rely on the administrative procedures provisions of paragraph (a) of this Section 9005.1 for Plan Year 2.
(d) The deferred compensation committee for a plan subject to paragraph (a) of this Section 9005.1 for a given plan year may elect to comply with the requirements of paragraph (b) of this Section 9005.1 for such plan year.
(e) For purposes of this Section 9005.1, "participant" means any person who, as of the last day of a plan year, has an account balance under the plan that is greater than zero.
(f) The administrative procedures requirement described in paragraph (a)(2) of this Section 9005.1 and the audit requirement described in paragraph (b)(2) of this Section 9005.1 shall be completed by no later than 6 months following the end of the plan year to which such administrative procedures or audit relates. Provided, however, for a plan year that ended on or after December 31, 2010 and before December 31, 2011, the administrative procedures or audit relating to such plan year shall be completed by no later than 12 months following the end of such plan year.
(g) The board or deferred compensation committee, as applicable, for a plan shall adopt and communicate to plan participants written procedures whereby a plan participant may request in writing or electronically to receive the financial statements and administrative procedures report described in paragraph (a)(2) of this Section 9005.1 and the audited financial statements and accompanying auditors report described in paragraph (b)(2) of this Section 9005.1 at no cost to the participant other than a reasonable charge for copying and postage. The board or deferred compensation committee, as applicable, will be deemed to have satisfied the requirements of this paragraph (g) if participants (i) are able to obtain the applicable reports and financial statements for the plan or (ii) are directed to a web site associated with the plan or the State or local employer sponsor of the plan that contains such information in a readily readable and downloadable format.
(h) The board or deferred compensation committee, as applicable, shall file with the president a complete and accurate copy of the financial statements and administrative procedures report described in paragraph (a)(2) of this Section 9005.1 or the audited financial statements and accompanying auditors report described in paragraph (b)(2) of this Section 9005.1 promptly following delivery of such statements and reports to the board or deferred compensation committee, as applicable.
(i) The provisions of this Section 9005.1 shall be in effect for each plan year of a plan ending on or after December 31, 2010.
Text of proposed rule and any required statements and analyses may be obtained from:
Edward J. Lilly, Deferred Compensation Board, PO Box 2103 Empire State Plaza Station, Albany, NY 12220, (518) 473-6619, email: elilly@nysdcp.com
Data, views or arguments may be submitted to:
Edward J. Lilly, Deferred Compensation Board, PO Box 2103 Empire State Plaza Station, Albany, NY 12220, (518) 473-6619, email: elilly@nysdcp.com
Public comment will be received until:
60 days after publication of this notice.
Regulatory Impact Statement
1. Statutory authority: State Finance Law, Section 5, authorizes the New York State Deferred Compensation Board to adopt rules and regulations regarding the standards and requirements of all deferred compensation plans established pursuant to Section 5.
2. Legislative objectives: Current Section 9005.1 requires deferred compensation plans to "cause all amounts held under a plan to be audited by a firm of certified public accountants" annually. This requirement is to assure that the salary that is deferred by public employees is properly invested and accounted within the plan. The proposal is designed to more accurately define the type of audit to be conducted.
3. Needs and benefits: It is a generally accepted principle that retirement savings plans be audited. Local governments have expressed to the Board that the costs associated with the preparation of an audit of financial statements can be expensive in relation to the number of participants in the plan. This proposal maintains the principle of conducting an annual examination of plan procedures and recordkeeping but in a more cost effective manner.
4. Costs: The proposed rule permits deferred compensation plans with fewer than 100 participants to prepare an unaudited financial statement of assets and the change in the amount of assets from the prior year and to employ a certified public accountant to conduct a series of administrative procedures to assure that salary deferrals by employees are properly invested and accounted. The proposed report of administrative procedures is a less costly alternative to an audit of plan financial statements that the rule currently requires.
5. Local government mandates: This proposed rule will reduce a current mandate.
6. Paperwork: This proposal does not increase any paperwork or reporting requirements.
7. Duplication: This rule will not duplicate, overlap or conflict with any other rule.
8. Alternatives: The Board examined procedures related to audits and administrative procedure reports. It was determined that there were no other alternatives to achieving the goal of maintaining the principle of conducting an audit but in a more cost effective manner.
9. Federal standards: There are no federal requirements or standards related to audits to be conducted by public employers who sponsor deferred compensation plans pursuant to Section 457 of the Internal Revenue Code.
10. Compliance schedule: The proposed effective date is for plan years ending on or after December 31, 2010. The proposal provides that the administrative procedures or audit must be completed within six months following the end of the plan year. For plan years ending on and after December 31, 2010 and before December 31, 2011, the administrative procedures or audit must be completed within 12 months following the closed of that specific plan year. This should provide sufficient time to employ a certified public accountant to conduct the administrative procedures report.
Regulatory Flexibility Analysis
1. Effect of rule: There are approximately 225 local governments in New York State that sponsor a deferred compensation plan. The New York State Deferred Compensation Board estimates that more than 150 of those plans have fewer than 100 participants.
2. Compliance requirement: This proposed rule will provide local governments that sponsor deferred compensation plans and have fewer than 100 participants with the option to conduct a series of administrative procedures related to the administration of the plan rather than an audit of the financial statements of the plan. This is a less costly procedure while maintaining the principle of conducting an annual examination of plan procedures and recordkeeping.
3. Professional services: The current rule requires that the audit of a plan's financial statements be conducted by a certified public accountant. The proper conduct of an administrative procedure will also require the hiring of a certified public accountant.
4. Compliance costs: The proposed rule permits a deferred compensation plan with fewer than 100 participants to prepare an unaudited financial statement of assets and the change in the amount of assets from the prior year and to employ a certified public accountant to conduct a series of administrative procedures to assure that salary deferrals by employees are properly invested and accounted. The proposed report of administrative procedures is a less costly alternative to an audit of financial statements that the rule currently requires.
5. Economic and technological feasibility: The conduct of an audit or administrative procedures report is feasible.
6. Minimizing adverse impact: This proposal achieves the goal of maintaining the principle of conducting an annual examination of plan procedures and recordkeeping in a more cost effective manner. Thus, it is minimizing the adverse impact of an existing rule.
7. Small business and local government participation: Local governments that sponsored smaller deferred compensation plans expressed to the Board that conducting an audit of financial statements could be expensive in relation to the number of plan participants. The Board examined procedures related to audits and administrative procedures reports to determine a feasible alternative to the requirement that an audit of the financial statements be conducted.
Rural Area Flexibility Analysis
1. Types and estimated numbers of rural areas: There are approximately 225 local governments in New York State that sponsor a deferred compensation plan. The New York State Deferred Compensation Board estimates that more than 150 of those plans have fewer than 100 participants. A number of these will be in rural areas.
2. Reporting, recordkeeping and other compliance requirements; and professional services: This proposed rule will provide local governments that sponsor deferred compensation plans and have fewer than 100 participants with the option to conduct a series of administrative procedures related to the administration of the plan rather than an audit of the financial statements of the plan. This is a less costly procedure while maintaining the principle of conducting an annual examination of plan procedures and recordkeeping. The current rule requires that the audit of a plan's financial statements be conducted by a certified public accountant. The proper conduct of an administrative procedure will also require the hiring of a certified public accountant.
3. Costs: The proposed rule permits a deferred compensation plan with fewer than 100 participants to prepare an unaudited financial statement of assets and the change in the amount of assets from the prior year and to employ a certified public accountant to conduct a series of administrative procedures to assure that salary deferrals by employees are properly invested and accounted. The proposed report of administrative procedures is a less costly alternative to an audit of financial statements that the rule currently requires.
4. Minimizing adverse impact: This proposal achieves the goal of maintaining the principle of conducting an annual examination of plan procedures and recordkeeping in a more cost effective manner. Thus, it is minimizing the adverse impact of an existing rule.
5. Rural area participation: Local governments that sponsored smaller deferred compensation plans expressed to the Board that conducting an audit of financial statements could be expensive in relation to the number of plan participants. The Board examined procedures related to audits and administrative procedures reports to determine a feasible alternative to the requirement that an audit of the financial statements be conducted.
Job Impact Statement
1. Nature of impact: This rule change does not have an identifiable impact on jobs or employment opportunities.
