Bull or No Bull?

[Andy the Actuary]

As my avitar shows, I crunch numbers, mostly N's and D's and the like. That's why I do a double take when the pension plan auditor says they are holding up the calendar year 2007 plan audit report until the Sept 2008 asset statement is issued. Apparently, their report needs to comment on the effect of the current market conditions. Presumably, if they had completed their audit in April, there would have issued the report without delay. I know the SAR will not comment on current market conditions.

The 5500 must be signed by October 15 and the auditor still hasn't issued its report. Does this seem appropriate? Are any of your clients facing such delays?

[AndyH]

I experience new and different levels of over-zealousness from auditors each year, but that is a new one.

[Guest Not Amused]

Gee - do ya think maybe they are a bit defensive about their role in the current economic crisis?

[mwyatt]

From a side standpoint, also is an interesting insight into the debate on AFTAPs for end of year valuations. Certainly 2008 will have a "material effect" on an AFTAP calculated as of the beginning of 2008/end of 2007 vs. numbers at the end of year. Of course, don't think that movement in the AFTAP is dependent on the valuation date for investment performance.

[Andy the Actuary]

From a side standpoint, also is an interesting insight into the debate on AFTAPs for end of year valuations. Certainly 2008 will have a "material effect" on an AFTAP calculated as of the beginning of 2008/end of 2007 vs. numbers at the end of year. Of course, don't think that movement in the AFTAP is dependent on the valuation date for investment performance.

Have been in this analagous black hole on occasion regarding election of the appropriate determination date to determine 110% of CL and assets for restricted distribution purposes.

[SoCalActuary]

And the religious converts to PPA's implementation of financial economics will remind us that a dip in the market must also change the liabilities to match current interest rates.

[JanetM]

Yes the auditors are over board again this year, my 12 plans are all getting an additional footnote that discusses the market. And yes to the holding all the financial statements hostage until they see september numbers.

Someone remind me why I wanted to manage retirement plans and do all the accouting and reporting?

[AndyH]

Yes the auditors are over board again this year, my 12 plans are all getting an additional footnote that discusses the market. And yes to the holding all the financial statements hostage until they see september numbers.

Someone remind me why I wanted to manage retirement plans and do all the accouting and reporting?

Janet, do they make you do your own financials for the audit report yet? If not, you have that to look forward to.

[Andy the Actuary]

Yes the auditors are over board again this year, my 12 plans are all getting an additional footnote that discusses the market. And yes to the holding all the financial statements hostage until they see september numbers.

But, I presume these are for defined contribution and not defined benefit plans? In the DC plan case, we're talking about the employees' balances being subject to the investment conditions; in the DB plan, we're talking about the employer, which could affect employees, for example, if lump sums are to be restricted.

[JanetM]

I have done the financial statements and first draft of foot notes for this company for 9 years. The 12 I mentioned are DB - there are 4 additional DC. the DB note discusses market conditions and ends with " .. because the value of assets will change with market conditions the amount of gains or losses that will be recognized in subsequent periods and the impact on funded status and future minimum required contributions if any, cannot be determined".

I believe the DC not will have the market conditions language and then end with short line about the the impact on future value of the individual accounts will depend on the asset allocation blah blah blah. That was the gist of the draft note I saw.

The audit partner at the firm we use is also a member of the AICPA employee benefit group - they are the ones who update the plan audit guide used by all auditors.

[Andy the Actuary]

I have done the financial statements and first draft of foot notes for this company for 9 years. The 12 I mentioned are DB - there are 4 additional DC. the DB note discusses market conditions and ends with " .. because the value of assets will change with market conditions the amount of gains or losses that will be recognized in subsequent periods and the impact on funded status and future minimum required contributions if any, cannot be determined".

I believe the DC not will have the market conditions language and then end with short line about the the impact on future value of the individual accounts will depend on the asset allocation blah blah blah. That was the gist of the draft note I saw.

The audit partner at the firm we use is also a member of the AICPA employee benefit group - they are the ones who update the plan audit guide used by all auditors.

The general happy-pasture-pie caveat is reasonable; to start commenting based upon asset values as September could be just as misleading as not commenting. Assets can recover.

[chc93]

Yes the auditors are over board again this year, my 12 plans are all getting an additional footnote that discusses the market. And yes to the holding all the financial statements hostage until they see september numbers.

Well... to continue this saga, the auditor of one of our plans asked that we change the end of year market values on Schedules D and H to their "current market value", which I assume is very recent, and definitely not the "end of the plan year" (or Dec 31, 2007).

[Andy the Actuary]

Yes the auditors are over board again this year, my 12 plans are all getting an additional footnote that discusses the market. And yes to the holding all the financial statements hostage until they see september numbers.

Well... to continue this saga, the auditor of one of our plans asked that we change the end of year market values on Schedules D and H to their "current market value", which I assume is very recent, and definitely not the "end of the plan year" (or Dec 31, 2007).

There action violates the IRS instructions. This means the SAR would have to be fictionalized as well. If this plan is covered by the PBGC, then assets reported on the 5500 and PBGC filings would disagree. Also, your assets for 430 would not agree. And, would the auditor have requested this change had assets appreciated by 20% since close of year? Survey says, number one answer, nada.

If an auditor demanded this change, I would refuse and explain to the client why and instruct that the client or auditor or some other service provider would have to prepare. This would also mean preparing the next year because I wouldn't want to misstate beginning assets as well. What section of ERISA would you cite to an IRS auditor to support this work of fiction. At very least -- suppose I'm dead wrong -- I would press the auditor to cite in writing the appropriate reference which supports his treatment.

To quote Dean Wormer, "I hate those guys."

[chc93]

Yes the auditors are over board again this year, my 12 plans are all getting an additional footnote that discusses the market. And yes to the holding all the financial statements hostage until they see september numbers.

Well... to continue this saga, the auditor of one of our plans asked that we change the end of year market values on Schedules D and H to their "current market value", which I assume is very recent, and definitely not the "end of the plan year" (or Dec 31, 2007).

There action violates the IRS instructions. This means the SAR would have to be fictionalized as well. If this plan is covered by the PBGC, then assets reported on the 5500 and PBGC filings would disagree. Also, your assets for 430 would not agree. And, would the auditor have requested this change had assets appreciated by 20% since close of year? Survey says, number one answer, nada.

If an auditor demanded this change, I would refuse and explain to the client why and instruct that the client or auditor or some other service provider would have to prepare. This would also mean preparing the next year because I wouldn't want to misstate beginning assets as well. What section of ERISA would you cite to an IRS auditor to support this work of fiction. At very least -- suppose I'm dead wrong -- I would press the auditor to cite in writing the appropriate reference which supports his treatment.

To quote Dean Wormer, "I hate those guys."

As a "good" end to my saga... the auditor said that in their "preliminary discussion", the engagement partner agreed with my position that assets as of Dec 31, 2007 must be used on Schedules D and H, and that no changes should be made. They will disclose the difference between the Form 5500 assets as of Dec 31, 2007 and their financial statement in a footnote. For my interest, I also asked the date of their "current market value"... response was Oct 8, 2008...