MCB Accounting Blog

Believe it or not, the federal Department of Labor (DOL) does not require that an investigator announce the scheduling of a wage & hour investigation. An investigator has sufficient latitude to initiate unannounced wage & hour investigations to directly observe normal business operations and obtain information.

The following are some strategies to prevent such an investigation:

1. Avoid unfair compensation practices.  Compensate employees consistently. If pay practices are consistent, complaints are less likely to arise, and you will be in a better position if DOL does launch a wage & hour investigation.
2. Understand the regulations. Understand the Fair Labor Standards Act (FLSA). It is the law, and failing to follow it could subject you to litigation or a DOL audit.
3. Train managers thoroughly. Managers should understand the FLSA and follow it.
4. Analyze both state and federal law.  Determine whether your state's wage & hour laws conflict with the federal law, then follow the law that is the most beneficial to the employee.
5. Pay past overtime due. If it is determined that an employee is wrongly classified as exempt, you should determine how many overtime hours the employee has worked in the past two years , then pay him or her the overtime due.  You should have the employee sign a release freeing you from further liability.
6. Follow child labor laws.  You must determine a minor's age and set his or her job duties and work schedules accordingly.  You must also file the minor's age certificate and keep it as long as the minor is employed.
7. Pay interns, unless they meet a strict test. Internship in the for-profit, private sector will most often be viewed as employment by the DOL, unless a strict test is met. Interns who qualify as employees rather than trainees must be paid at least the minimum wage and overtime for hours worked over 40 in a workweek.
8. Respond to internal complaints quickly.  If an employee files a wage & hour complaint internally, you should take it seriously.  You may be able to prevent an investigation by addressing an employee's initial internal complaint.
9. Seek compliance assistance from DOL.  Compliance tools and information are available on DOL's website.
10. Conduct a self-audit. Hire an attorney to audit your company or do it yourself before DOL initiates an investigation.  An audit can help ensure compliance. Review job descriptions to make sure they are accurate and reflect the jobs performed and the skills needed. Review actual job duties to ensure that they still fall within the administrative, executive, professional, computer, or outside sales exemptions. Make sure overtime for nonexempt employees has been properly calculated. Make sure the required posters have been hung in the appropriate places.

In addition, be sure that records are complete, accurate and unambiguous.  Pay records for every employee for each pay period should be maintained for three years.

If violations are found, you may owe back pay, face penalties and be instructed by DOL to make changes in your employment practices.

Click here to view the complete HRnewsWatch.com article.

MCB has over 35 years of hospitality accounting experience providing audit, tax, accounting, due diligence and employee benefit plan audit services.  Contact an MCB Adviser today at info@mcb-cpa.com or call 703.218.3600 to discuss your hotel accounting and tax needs or to receive a proposal for your next financial statement audit.

A number of new regulations affecting business activities including financial instruments, human resources, health care and retirement plans and accounting are set to take effect in 2012.  Included are new Securities and Exchange Commission regulations spawned by the sprawling Dodd-Frank financial law. Rules yet to come include some involving swaps and derivatives, an executive compensation "claw-back" provision and other regulations involving so-called "conflict minerals."  The extent of and deadlines for these forthcoming rules are uncertain.

Employers are bracing for requirements stemming from the 2010 health care overhaul. Several of these provisions go into effect in 2012.  Companies must provide a short summary of their health care benefits to all employees, showing employees' share of the cost in common medical situations. Final rules are pending  on the exact information to be included.

Companies will have to report the value of their health care plans on employees' W-2 forms.  These figures eventually could be used to determine whether companies could be fined for not providing health care of might have to pay the tax on so-called Cadillac health plans.

In addition, companies will have to pay $1 per plan participant to fund an independent research group that will study the effectiveness of medical treatments. 

New rules for employer-sponsored 401(k) retirement plans require companies to disclose in plain English how much plan administrators are charging participants.

Accounting changes involve a new standard on fair-value measurement designed to align U.S. and international practices and new rules on goodwill impairments to streamline the process used to take write-downs on assets that have lost value.

Contact an MCB Adviser for your audit, tax and accounting needs at 703.218.3600 or at info@mcb-cpa.com.

The IRS has made several important changes to its determination letter program for employee retirement plans.  The changes, which will take effect in 2012, eliminate features of the determination letter program that are of limited utility to plan sponsors in comparison with the burdens they impose. The changes are also expected to reduce the time it takes the IRS to process determination letter applications.

The changes will be reflected in Revenue Procedure 2012-6, which will set forth the procedures for issuing determination letters on the qualified status of employee plans. The changes eliminate elective demonstrations regarding coverage and nondiscrimination requirement and provide that only employers that have made limited modifications to a preapproved volume submitter plan may file Form 5307.

 In addition, the IRS expects to revise the language of opinion and advisory letters to clarify the circumstances in which these letters are equivalent to a determination letter.

Click here to view the complete Accounting Today article.

Contact MCB's Employee Benefit Plan Audit Practice Leader, Charles Deppe, at 703-218-3600 or email info@mcb-cpa.com  with your benefit plan questions or to request a proposal for your next review or audit.

One of the most important and controversial topics in the realm of employee benefits recently has been the definition of "fiduciary." The Department of Labor (DOL) has taken on the task of broadening its definition of the term under the Employee Retirement Income Security Act of 1974 (ERISA).  The DOL issued a proposed rule redefining "fiduciary" in 2010, but under pressure from the public and some members of Congress, it withdrew the regulations in September 2011.  It is now expected to issue an amended definition in 2012. The new regulations are expected to provide strong protections for plan participants and beneficiaries.

The Basics

A fiduciary of a retirement plan is any person who exercises judgment or discretion in administering or managing a plan or who has control over plan assets. Fiduciaries generally include the plan's trustee, investment advisers, plan administrative or investment committee members and those who select committee members. Fiduciaries may also include the company and its officers and board of directors.  Whether or not a person is a fiduciary depends on the functions performed on behalf of the plan, not just a person's title.

Fiduciaries have a general duty to act solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them. Fiduciaries must also carry out their responsibilities prudently, disclose complete and material information to plan participants and beneficiaries, follow plan documents, monitor and evaluate the performance of service providers, follow the terms of plan documents, appoint other fiduciaries, select and monitor plan investments, interpret plan provisions and exercise discretion in approving or denying benefit claims. Other duties include diversifying plan investments and paying only reasonable plan expenses.

It is not possible to rid oneself of fiduciary duty by delegating it to a third party or by including disclaimer language in plan documents. Even when certain duties are delegated, those who hired the service provider retain the duty to monitor and evaluate the service provider's performance.

Personal Liability of Fiduciaries

Under ERISA, fiduciaries who breach their duties and cause the plan to incur a loss are personally liable.  Generally, this means that a fiduciary must make the plan whole and return to the plan any personal profits gained through the use of plan assets, plus a 20% penalty and other equitable or remedial relief that a court may deem appropriate. The key to limiting personal liability is proving that a fiduciary acted prudently. If the fiduciary is successful in proving that he or she acted prudently, he or she should not be held personally liable for a loss incurred by plan participants.  However, this may be difficult to prove. One way fiduciaries can demonstrate that they have carried out their responsibilities properly is by documenting the processes used to carry out fiduciary responsibilities.

Fiduciaries should be aware of others who serve as fiduciaries to the same plan. All fiduciaries have potential liability for actions of their co-fiduciaries. For example, if a fiduciary knowingly participates in another fiduciary's breach of responsibility, conceals such a breach or does not act to correct it, that fiduciary is liable as well.

Best Practices to Limit Fiduciary Liability

The following best practices in plan governance can help limit fiduciary liability:

• Effective committees. Members should have relevant skills and be willing to devote the necessary time, receive sufficient training, hold meetings regularly, distribute meeting agendas in advance  and document decisions carefully.
• Written plan policies. Written policies regarding plan investments and a statement of investment policy should be in place.
• Accountability.  The role of each fiduciary should be documented, and each fiduciary should be aware of others who serve as fiduciaries of the same plan.
• Oversight and monitoring. An investment or administrative committee should periodically review the performance of fiduciaries and service providers and regularly review compliance with ERISA.
• Effective flow of information. Timely and relevant plan-related information should be shared among decision makers, third-party administrators, consultants, legal counsel and other advisers.
• Bonding. Fiduciaries who handle plan funds or other plan property should be covered by a fidelity bond.
• Fiduciary liability insurance/indemnification. A fiduciary liability insurance policy covering breaches of fiduciary duty and errors and omissions should be purchased.

Click here to view the Department of Labor's booklet, "Meeting Your Fiduciary Responsibilities."

Contact MCB's Employee Benefit Plan Audit Practice Leader, Charles Deppe, at 703-218-3600 or email info@mcb-cpa.com  with your benefit plan questions or to request a proposal for your next review or audit.

The IRS has increased the maximum pre-tax contribution limit for 401(k) and 403(b) retirement plans, most 457 plans and the federal government's Thrift Savings Plan for 2012 from $16,500 to $17,000, up $500 from 2011, as a result of cost-of-living adjustments. Other limitations, such as the catch-up contribution limit of $5,500 for those aged 50 or over, remain unchanged.

The maximum amount of earnings subject to the Social Security tax will increase from $106,800 to $110,100. Of the 161 million workers who will pay Social Security taxes in 2012, approximately 10 million will pay higher taxes as a result of the increase in the taxable maximum.

The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and who have modified adjusted gross incomes between $58,000 and $68,000, up from $56,000 and $66,000 in 2011.  For married couples filing jointly, in which the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $92,000 to $112,000, increased from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace plan and is married to someone who is covered, the deduction is phased out if the couple's income is between  $173,000 and $183,000, up from $169,000 and $179,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 and $179,000 in 2011.  For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing separately who is covered by a retirement plan at work, the phase out range remains $0 to $10,000.

The income limit for the saver's credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $57,000 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and singles, up from $28,250.

Click here for more details on the 2012 contribution limits.

Contact an MCB Tax Adviser for your tax and accounting needs at 703.218.3600 or at info@mcb-cpa.com.

The Financial Accounting Standards Board has issued Accounting Standards Update No. 2011-09, which provides new requirements for disclosures about an employer's participation in and financial obligations to multi-employer pension plans.  Multi-employer pension plans commonly are used by an employer to provide benefits to union employees who may work for many employers during their working life, thereby enabling them to accrue benefits in a single pension plan.

The new disclosures include the following:

• The amount of employer contributions made to each significant plan and to all plans in the aggregate.
• An indication of whether the employer's contributions represent more than 5% of total contributions to the plan.
  
• An indication of which plans, if any, are subject to a funding improvement plan
  
• The expiration date(s) of the collective bargaining agreement(s) and any minimum funding arrangements.
  
• The most recent certified funded status of the plan, as determined by the plan's so-called "zone status." If a plan's  zone status is not available, the employer will be required to disclose whether the plan is:
  • Less than 65% funded
  • Between 65% and 80% funded
  • At least 80% funded
• A description of the nature and effect of any changes affecting comparability for each period in which a statement of income is presented.
  

The proposed disclosure of an employer's withdrawal liability, which was the most controversial aspect of the Exposure Draft, was eliminated in the new standard.

Prior to the issuance of this Update, employers were required to disclose only their total contributions to all multi-employer plans in which they participate. The new disclosures will help users of financial statements assess the potential cash flow implications relating to an employer's participation in multi-employer pension plans. The disclosures also will help indicate the financial health of all of the significant plans in which the employer participates and assist financial statement users to assess additional information available outside of the financial statements.

For public entities, the enhanced disclosures will be required for fiscal years ending after December 15, 2011. For nonpublic entities, the enhanced disclosures will be required for fiscal years ending after December 15, 2012. Early application is permitted.

Click here for more information about the disclosures and feedback from stakeholders.

Contact MCB's Employee Benefit Plan Audit Practice Leader, Charles Deppe at 703-218-3600 or email info@mcb-cpa.com  with your benefit plan questions or to request a proposal for your next review or audit.