By Frederick C. Teufel Jr., CPA, and Dennis Simmons, JD
It’s been over a generation since defined contribution or 401(k) plans emerged as supplemental plans to defined benefit plans for large and midsize businesses. Until recently, small businesses could get away with limiting their benefit offerings to health plans, but now many businesses must offer this private retirement vehicle to their employees to remain competitive.
But as defined contribution plans emerged as the retirement plan of choice for all but a few companies and governmental agencies, the rules, regulations, fiduciary responsibilities, investment options, operations, organization, risks, and governance challenges have exponentially increased. Large and some midsize businesses with significant resources have been able to invest in the people, processes, systems, and governance to get the most value out of their plans while minimizing attendant risks. Other midsize companies and small businesses rely heavily on their CFOs to take on those important tasks. This, of course, adds to the complexity of the CFO’s responsibilities.
An example of the increased scrutiny arising from defined contribution plans is the April 20, 2017, exposure draft from the AICPA’s Auditing Standards Board of a proposed Statement on Auditing Standard, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA. Although the draft standard is directed at audit firms, it is likely to increase the depth and breadth of plan financial statement audits. More importantly, the final standard may require exceptions noted by auditors during the performance of required procedures to be included in the audit report. Since that is filed as part of the Form 5500, it would be publicly available. It should not be surprising to anyone, then, that a recent survey of CFOs who are members of the PICPA overwhelmingly identified ongoing defined contribution plan education and guidance as an opportunity for the PICPA to help its members.
Perhaps the time has come to treat your defined contribution plan as its own business. That’s right – its own business. By staying on top of best practices and implementing a few simple processes, CFOs today can help their companies offer a competitive defined contribution plan and avoid risk.
The CFOs’ business acumen already makes them essential to the success of the core business. Treating a defined contribution plan as a separate business will enable CFOs to leverage the skills and knowledge that they routinely apply. For instance, a defined contribution plan that is well-designed, managed, and operated efficiently and effectively creates value. It enables the company to attract and retain the best and brightest talent in a competitive marketplace.
Companies that take that business approach to running their defined contribution plan will maximize the plan value while minimizing the myriad risks that come with offering a plan.
Join Fred Teufel and Dennis Simmons on July 26 at noon for a one-hour webinar to learn about the current defined contribution plan administration ecosystem, rules, regulations, and governance; key duties and operational responsibilities; and key operational and fiduciary risks. Register today!
Frederick C. Teufel Jr., CPA, is a visiting professor of accounting at Saint Joseph’s University in Philadelphia, Pa., and independent business consultant. He spent more than 30 years in public accounting at PwC and as a senior principal for the Vanguard Group of Investment Companies. Fred has been the independent auditor for defined contribution plans as a public accountant, has been responsible for the administration of in-house plans as a senior finance leader, and has delivered plan administration services to more than 1,800 clients.
Dennis Simmons, JD, is the executive director of the committee on investment of Employee Benefit Assets Inc. He is a former senior principal in Vanguard’s international legal team. Before joining the Vanguard international team, Dennis was the head of Vanguard’s ERISA and fiduciary services group and plan sponsor strategic consulting group, units that provided legal compliance and consulting support for defined contribution, defined benefit, executive compensation, and individual retirement plan businesses.
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