Defined Contribution Annuity Funds are pension plans that provide benefits based on amounts contributed to participants' individual accounts. Benefits are normally determined when the participant retires or withdraws from the plan and can be paid out in lump sum amounts or in monthly payments over a number of years. Benefits provided by these types of pension plans are limited to the participants' account balances and are not actuarially determined as are benefits provided by Defined Benefit Pension Funds.
Defined Contribution Annuity Funds can take many forms, the most common are money purchase plans, profit-sharing plans or 401K plans. These plans can be single-employer plans maintained by a single employer or multiemployer plans where more than one employer contributes pursuant to a collective bargaining agreement.
One of the more popular features of Defined Contribution Annuity Funds is that participants usually vest immediately upon receipt of contributions paid on their behalf. An individual account is set up in the participants' name as soon as contributions are received. Depending upon the specific plan, contributions can be either employer contributions and/or participant contributions.
The Annuity Fund must supply participants with periodic account statements that detail the activity in participants' individual accounts. The activity in each participant's account normally would include any employer or participant contributions plus any investment earnings minus any distributions and administrative fees. While the participants look forward to receiving their statements each year so they can watch their retirement money grow, the Plan's independent auditors are busy completing the audit so that these statements can be sent out on time. We here at Schultheis & Panettieri are experienced at working under pressure. We are as dedicated as our clients are in providing participants with timely and accurate information.
Investments held by Defined Contribution Annuity Funds on behalf of participants can be nonparticipant-directed, participant-directed or a combination of both. In a nonparticipant–directed program, the Board of Trustees, usually under the guidance of investment managers, directs the specific investments held by the Plan. Investments usually take the form of interest-bearing cash, U.S. government securities, corporate debt, mutual funds and common stocks listed on a stock exchange. In a participant-directed program, the individual participant selects the investments for his or her individual account. The participant is given investment training and then is offered various investment options that were selected by the Board of Trustees. Investment options offered to participants usually consist of mutual funds with varying market strategies. Participant-directed programs are especially popular in today's marketplace. Some Annuity Plans have a combination of nonparticipant-directed and participant-directed programs. Regardless of whether the Defined Contribution Annuity Fund is nonparticipant-directed, participant-directed or a combination of both, the Fund needs auditors who have experience with Annuity Plans since the financial reporting requirements differ depending on investment structure.
Some Defined Contribution Annuity Funds allow participants to borrow against their accounts for specific purposes. These loans, while popular with participants, create special accounting problems when the loan is issued, repaid and especially when foreclosed. Experienced auditors are needed to assist the Annuity Fund in dealing with the accounting, financial reporting and Internal Revenue requirements of these loans.
Since Defined Contribution Annuity Funds are subject to the provisions of the Department of Labor, ERISA (Employee Retirement Income Security Act of 1974), the Internal Revenue Service and Generally Accepted Accounting Principles, Annuity Funds require experienced and knowledgeable auditors who are equipped to deal with the complex auditing and compliance requirements of these particular plans. The auditors here at Schultheis & Panettieri service many Annuity Funds and have the experience to get the job done on a timely basis.
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