RELATED PARTY TRANSACTIONS
FASB Accounting Standards Codification (ASC) 850, Related Party Disclosures, defines related parties in the following manner:
- Affiliates of the entity
- Entities for which investments in their equity securities would be required, absent the election of the fair value option under the “Fair Value Option” subsection of FASB ASC 825-10-15, to be accounted for by the equity method by the investing entity
- Trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management
- Principal owners of the entity and members of their immediate families
- Management of the entity and members of their immediate families
- Other parties with which the entity may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests
- Other parties that can significantly influence the management or operating policies of the transacting parties or have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests
PARTY IN INTEREST TRANSACTIONS
A party in interest is defined by ERISA Section 3(14) to include the following:
- A fiduciary or employee of the plan or plan sponsor
- Any person who provides services to the plan
- An employer whose employees are covered by the plan
- An employee organization (union) whose members are covered by the plan
- A person who owns 50% or more of such an employer or employee organization
- Relatives of the aforementioned persons
Parties in interest to an employee benefit plan are essentially equivalent to related parties for other audit entities.
The following are some common examples of parties that may be related parties, parties in interest, or both. Immediate family of certain related parties and relatives of certain individual parties in interest may also be applicable. This list is not intended to be all inclusive:
- Plan sponsor
- Plan administrator
- Employer(s)
- Employee organization
- Employees, officers, and directors of the plan
- Employees, officers, and directors of the employer(s)
- Plan committee members (including those charged with governance)
- Management of the plan
- Plan trustee who is an officer or director of management of the employer
- Plan fiduciary (including, but not limited to, an administrator, officer, trustee, or custodian), counsel, or employee of the plan
- Principal owners of the entity sponsoring a single-employer plan
- Participating employers in a multiemployer plan, and entities that share common governance for example the local union and related benefit and health and welfare plans
- A person who provides services to the plan (for example, recordkeeper, actuary, auditor)
PROHIBITED TRANSACTIONS AND EVENTS CONSIDERED PROHIBITED TRANSACTIONS
A transaction between a plan and a party in interest that is prohibited under Section 406(a) of ERISA.
The types of transactions that are generally considered to be prohibited transactions between the plan and a party in interest are defined by ERISA Section 406(a) as follows:
- A direct or indirect sale, exchange, or lease of property
- A loan or other extension of credit (this includes sponsors failing to deposit monies withheld from participants paychecks
[salary deferrals] on a timely basis as well as repayments of notes receivable from participants) - The furnishing of goods, services, or facilities
- A transfer of plan assets to a party in interest for the use or benefit of a party in interest
- An acquisition of employer securities or real property in violation of the 10% limitation (Section 407 of ERISA)
SUBSEQUENT EVENTS
The following are some common examples of subsequent events: (occurrences since the end of the plan year)
- Abnormal disposal or purchase of investments since year-end
- Significant amendments to the plan document
- Changes in service providers
- Any change in the amount of employer matching contribution to be allocated to participants’ accounts that may require disclosure in the footnotes
- If the plan requires that certain performance targets are met for participants to receive the employer matching contribution, whether the plan in fact met the target for the year under audit
- Any new commitments or contingencies that may affect the plan, as well as an update to the litigation matters identified during the audit (if any)
- Any investigations by the DOL, IRS, or other regulatory agency since the end of the plan year. Note that the IRS will often request to perform an audit of a plan sponsor’s employee benefit plans in connection with an audit of the plan sponsor’s federal income tax filings
- Any plans by management to terminate or merge the plan or spinoff plan assets that may result from an acquisition or disposition of a division or company by the plan sponsor and cause the immediate vesting of employer matching contributions
- Adverse financial conditions of the plan sponsor