Money Matters: Timely defined contribution plan topics

By Megan Broomfield The Daily Record Newswire In September 2010, the Financial Accounting Standards Board issued ASU 2010-25, "Plan Accounting -- Defined Contribution Pension Plans (Topic 962): Reporting Loans to Participants by Defined Contribution Pension Plans," to amend ASC Topic 962, Plan Accounting -- Defined Contribution Pension Plans. This ASU affirmed and codified the FASB's original proposal to classify participant loans as notes receivable carried at amortized cost, rather than as investments subject to fair value measurement, in defined contribution plan financial statements. The amendments require that participant loans be segregated from plan investments and measured at their unpaid principal balance plus accrued but unpaid interest. As such, participant loans no longer require fair value measurement and are excluded from the disclosure requirements specified in ASC 825-10-50-10 through 16. The amendments apply to all defined contribution plans that allow participant loans and should be applied retrospectively to all prior periods presented. The amendments are effective for fiscal years ending after Dec. 15, 2010. Early adoption is permitted. It is also important to note, however, that based upon current Department of Labor reporting requirements, participant loans will continue to be reported as investments on the supplemental schedule of assets (held at end of year) along with the plan's assets held for investment purposes. In addition, the FASB exempted these notes receivable from the credit quality disclosures in ASU 2010-20. Do you have a "Mr. Forfeiture" in your plan? "Mr. Forfeiture" will not have an enrollment form for the plan or receive a salary from the plan sponsor. Typically, his social security number is 999-99-9999. He is not an actual participant, but his account in your plan may represent the non-vested portion of terminated participants' account balances for matching or non-elective employer contributions. In defined contribution plans, forfeitures occur when participants fail to complete a period of service before becoming fully vested in the employer's contributions. When a participant terminates before completing the service requirement, as defined in the plan document, his or her non-vested account may be forfeited. Some plan administrators place these forfeited amounts into suspense or forfeiture account, sometimes commonly titled as "Mr. Forfeiture," and allow these forfeitures to accumulate over several years. However, this practice is not allowed under the Internal Revenue Code. The plan document should contain language that details how and when a plan can use the forfeitures. Forfeitures may generally be used to pay a plan's administrative expenses, to reduce employer contributions or be allocated among participants on at least an annual basis. Plan sponsors and third-party administrators need to monitor plan forfeitures periodically to ensure that forfeitures generated in a plan year are used in accordance with the plan document. If the plan document allows for forfeitures to reduce employer contributions, this may assist in the plan sponsor's cash management. All funds in a defined contribution plan must be allocated to participants or it jeopardizes its qualified plan status. If your plan has been accumulating a balance in a forfeiture account, then there may be an operational error that will need to be corrected. Plan sponsors can correct this error using the Employee Plans Compliance Resolution Systems with the IRS. Depending on the length of time between the error and the correction, the Plan would use either the Self Correction Program or the Voluntary Correction Program. Friendly planning reminders * Register for electronic signing credentials which will enable the appropriate individual to electronically sign the Form 5500 and submit it through EFAST2. Form 5500 signers can log on today and get credentials at www.efast.dol.gov. * Communicate now with service providers regarding any information needed for the additional disclosures related to ASU 2010-6. * Request from the service providers the auditor's year-end reporting package * Request and evaluate SAS 70 reports from all plan service providers. * Form 11-K filing deadline is 180 days after the plan's year end, generally for calendar year-end plans that would be June 29. * Form 5500 filing deadline is seven months after the plan's year end, generally July 31, for calendar year-end plans (an extension of 2.5 months may be requested). Megan Broomfield, CPA, is a partner with Mengel, Metzger, Barr & Co. LLP. She can be reached at (585) 423-1860 or Mbroomfield@mmb-co.com. Published: Thu, Mar 17, 2011