How do you audit a 403(b) in-kind distribution? There is no financial transaction, no cash changes hands, there is no change in investments. It really is only a nominal change in the records of the insurer. Yet, somehow, GAAP requires that the “transaction” be verified. There is no answer, yet, to this question, which means the industries (that is, auditors, insurers, and lawyers) will be pressed for finding a standardized approach for bringing audit certainty to this process. It even becomes a bigger issue than 403(b)s: QLACs and other distributed annuity contracts are all able to be distributed as “in-kind” distributions from 401(a) plans as well, and there is no acceptable “recordkeeping” method to audit.
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After many years of wading through a variety of retirement plan platforms and services, I can honestly say “I will never stop being fascinated”.  I do believe, with 100% certainty, that I will never be able to anticipate every possible compliance issue.    However, with as much certainty, I can say “processes, procedures and effective internal controls are vital to avoiding possible compliance gaps and hiccups and maintain a successful retirement plan.”

The IRS recognizes that gaps and hiccups will arise when comparing FORM, the plan document & design, to the plan’s operations, administrative processes and procedural activities.  The IRS provides guidance for plan sponsors to self-correct with the understanding that it isn’t as simple as just finding the gap or hiccup.  The IRS expects the plan sponsor to take three steps when gaps or hiccups arise…
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 BNA reported on August 20th the concerns of the AICPA’s  403(b) Plan Audit Task Force about practitioners "misunderstanding" of the impact of the recently issued DOL FAB 2009-2, where the DOL took steps to alleviate some of the more draconian impacts of the new Form 5500 reporting rules for certain 403(b) plans.

Task force members are reported