Archive for February 24, 2015

990 Policy Compliance Series – What is an Independent Board Member?

On the 990, the first questions regarding the governing body are how many voting members are on the board and how many of those members are independent. A member of the governing body is considered “independent” only if ALL of the following four circumstances were applicable at ALL times during the organization’s tax year (fiscal year):

1. The member was not compensated as an officer or other employee of the organization or a related organization (simply put, any entity that is a parent, subsidiary, brother/sister, supporting/supported organization to the filing entity at any point during the year – see Schedule R instructions for more complete definitions). The member also was not compensated by any unrelated organizations for services provided to the filing entity or to a related organization. There is an exception for receiving compensation as an agent of a religious order (there are specific conditions that must be met).
2. The member did not receive total compensation exceeding $10,000 during the tax year from the filing entity and/or a related organization as an independent contractor (not including reasonable compensation for services provided in the capacity as a board member).
3. Neither the member nor any of his or her family members was involved in any transaction with the filing entity which is reportable on Schedule L (Transactions with Interested Persons – see IRS Schedule L filing tips for more detailed reporting requirements).
4. Neither the member nor any of his or her family members was involved in any transaction with a related organization that is reportable on Schedule L.

The IRS specifically states that the following circumstances do not indicate a lack of independence as a board member:

1. The member is a donor to the organization.
2. Religious exception (as discussed above).
3. The member receives benefit from the organization by being a member of the charitable or other class that is served by the organization.

Further, the IRS expects the organization to engage in all reasonable efforts to obtain the necessary information in order to determine whether members are independent. A good conflict of interest policy can help with this effort. Stay tuned for a future blog post on effective conflict of interest policies.

Read other articles in our “990 Policy Compliance” series:

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.

 

Retirement Plan Sponsor Best Practices

Non-profit organizations have a minefield of details to navigate and regulations to adhere to when they sponsor a retirement plan. To help non-profits understand and manage their legal responsibilities as plan sponsors, Will Berry of Wealth Planning Resources, LLC shares some important best practices and a warning about increased scrutiny being placed on fee disclosure.

What are some issues you see that should be a concern for retirement plan sponsors?

Retirement Plan Sponsor Best PracticesToo often we find that plan sponsors do not necessarily know who is a fiduciary, and, if they do, they do not necessarily know what their responsibilities as fiduciaries are. Often there is no clear process in place to manage these responsibilities. We come across many executive directors and human resources professionals at non-profits trying to juggle the many responsibilities of a fiduciary, even though it is not an area of their expertise and they are busy with many other non-retirement plan responsibilities.

What are some best practices for retirement plans sponsors?

1. Know the laws and rules that govern your plan as dictated by ERISA and your plan document.

2. Every plan should have an IPS (Investment Policy Statement). An IPS should spell out the process of managing your fiduciary responsibility. Questions that should be answered by the IPS include but are not limited to:

    • What are the objectives of the plan?
    • Who are the parties to the plan and what are their roles?
    • Which asset classes/types of investments will be available?
    • How are plan investments monitored and benchmarked?
    • What is the process for employee education?
    • How are services and fees by service providers monitored?

3. Always act in the best interest of plan participants. I believe that participants know when a plan is well managed and the employer has their best interests at heart.

4. With the help of your service providers, make tools and information available that can help participants make good decisions.

5. Avoid conflicts of interest.

6. Make decisions using the Prudent Man Rule. In other words, act with care and due diligence that a prudent person would exhibit in a similar situation.

7. Be diligent and document all that you do. Document the process that you go through, the decisions you make and the criteria you use to get to decisions. You do not have to be an expert in all areas, but review capabilities and expertise of those experts whose advice you rely on to guide your decisions.

Are there any hot topics that we should be aware of?

There is a great amount of scrutiny placed on fee disclosure right now. I would suggest plan administrators first make sure they have a detailed understanding of all plan fees and expenses. Secondly, they should work with their service providers to implement a plan on how and when fees will be disclosed to participants in a way that will be compliant with ERISA rule 404(a)(5). Remember to always document what you did and when you did it.

Will Berry’s firm, Wealth Planning Resources, works with plan sponsors to help implement and monitor retirement plans as well as to provide employee education. He graduated from James Madison University in 1999 with a BBA in Finance. His professional certifications include Chartered Financial Consultant (ChFC) and Certified Life Underwriter (CLU), and the Accredited Investment Fiduciary® (AIF®) Designation.

Shannon Crowley Massachusetts CPAShannon Crowley is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Shannon oversees audit engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects. Shannon has worked with clients in a variety of industries, including healthcare, higher education, non-profit, manufacturing and distribution.

990 Policy Compliance Series – Ensuring Transparent Governance and Operational Policies

As a tax-exempt organization, you are subject to a greater level of scrutiny from various sources than many other types of entities. Within the annual Form 990 filing, the IRS inquires about certain compliance, governance and management practices, which allows the government, donors and the general public to gain detailed knowledge about your organization. In Part VI of the 990, there are several policy and governance questions asked of filing entities, and, as laid out in the detailed instructions, there are some very specific requirements with which you must comply in order to answer affirmatively. Many of these policies are not legally mandated, and the non-profit faces no fines or penalties for not adopting the policies. However, all 990 filers are required to answer these questions, and certainly it is in the non-profit’s best interest to consider and adopt policies that help to ensure transparent and sound operational processes.

In the coming weeks, we will publish a series of posts on how to stay in compliance with certain 990 governance and operational policies as well as some further information to help you answer the questions appropriately.

Read other articles in our “990 Policy Compliance” series:

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.