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Top Takeaways - 2011 Benefit Plan Professionals Institute
Contributions by:  Jasmine Baker, CPA, Manager; Andy Beck, CPA, Manager; Jenea Smith, CPA, Manager; and Todd Stokes, CPA, Manager
August 18, 2011

In June, representatives of Lindquist LLP attended the Benefit Plan Professionals Institute for Accountants, a conference of the International Foundation of Employee Benefit Plans (IFEBP).  Though the content was geared toward accountants, there were a number of nuggets worth sharing with plan sponsors and other plan professionals.  Our team’s top takeaways follow.

Health Care Fraud

Health care fraud can be costly to health and welfare plans, individuals and others.   Lindquist LLP Manager Jasmine Baker, CPA, found the presenter’s session on “Health Care Fraud—What’s Hot Now?” to be beneficial, because it covered both the tactics used to commit fraud and the warning signs.

Some of the tactics used by those who commit fraud are:

  • Billing for services not rendered, billing for dates not treated or misrepresenting a diagnosis.
  • Submitting claims using the name of a dead doctor.
  • Misusing healthcare identification cards and medical identity theft.

It is important to be aware of the warning signs of health care fraud, which may include:

  • Diagnosis codes that do not make sense based on the treatment provided.
  • Health and welfare plan employees that never take vacation.
  • Inconsistencies between the patient’s home zip code as compared to the doctor’s office zip code.

Disclosure Rules under 408(b)(2)

With an imminent effective date, Lindquist LLP Manager Andy Beck, CPA, felt the discussion of ERISA 408(b)(2) disclosure requirements by Ian Dingwall from the Department of Labor was worth highlighting.

Effective January 1, 2012, new disclosure requirements of ERISA 408(b)(2) will be implemented to promote transparency between fiduciaries and their service providers.  Under 408(b)(2), an agreement between the Plan and a service provider must be in writing and include a detailed description of the services to be provided, fees for services provided (direct and indirect), the method of delivery and any information that could, or will, lead to a conflict-of-interest.  Service providers subject to these requirements include, but are not limited to:  broker-dealers, recordkeepers, registered investment advisers, third-party administrators, banks and trust companies.

The new disclosure requirements are intended to help fiduciaries assess the reasonableness of professional fees and to identify conflicts-of-interest that may exist, or may have existed in the past, between a plan and its professionals.  Any entity in violation of 408(b)(2) will be subject to excise taxes.

Payroll Compliance Programs

Lindquist LLP Manager Jenea Smith, CPA, thought the session “How to Provide the Best Payroll Auditing” underscored how important the fundamentals in payroll compliance programs are in helping Trustees fulfill their fiduciary responsibility and verifying the accuracy of employer contributions.

Many Boards of Trustees have established a delinquency committee or sub-committee to review the results of payroll audits on a monthly basis.  The committee should consist of labor and management representatives, the fund attorney and the payroll compliance auditor.  Establishing a separate committee saves time at Board of Trustees’ meetings, ensures regular review of delinquent employers, provides adequate time for employer appeals and provides frequent guidance to plan professionals on collection issues, contract interpretation and settlement or lawsuit approval.

Another best practice that was discussed in the session was to have the employer under audit sign the summary of the results upon completion of the testing.  This is helpful to the auditor, employer and Board of Trustees in clearing up preliminary exceptions and reducing any confusion regarding the results of the audit.

Derivatives

Lindquist LLP Manager Todd Stokes, CPA, has observed a steady increase in the use of derivatives in his clients’ investment portfolios over the past several years because of the volatility of the investment landscape.  In light of his experience with this growing trend, Todd found the session on “Dealing with Derivatives” valuable.

Employee benefit plans typically utilize derivatives to hedge risk in their investment portfolios.  While derivatives serve an important purpose, plan sponsors need to be aware that derivatives do require additional attention and cost for valuation and financial statement disclosure.

Employee benefit plans are required to account for the assets and liabilities related to their derivative holdings at fair value in their financial statements.  This can potentially be difficult for those derivatives not actively traded on national exchanges.  If this is the case, a plan sponsor may need to utilize a pricing source or engage a valuation specialist in order to obtain an independent fair value for its derivative holdings.

The other concern with having derivatives within the plan’s investment portfolio is the increased need for disclosure within the plan’s financial statements.  The disclosure requirements for the derivatives in the portfolio are directly related to the form they take, either embedded or direct. 

Disclosure requirements are fairly limited for embedded derivatives.  However, with direct ownership of derivatives, the required financial statement disclosures become more complex and may include:  the nature and purpose of the use of the derivative investment; the notional amount of the derivative(s) held; valuation-related disclosures; proper recognition of gains and losses; and counterparty risk disclosures.

Annual Conference

The 57th U.S. Annual Employee Benefits Conference, also hosted by the IFEBP, is scheduled for October 30, 2011–November 2, 2011, at the New Orleans Morial Convention Center.  The conference features over 130 sessions, workshops and roundtables covering an array of topics for labor and management trustees, administrators, plan professionals and service providers of multiemployer and public sector benefit plans.  Visit http://www.ifebp.org/Education/UsAnnual/ for more information.  We hope to see you there!

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