Many not-for-profits organizations are now subject to additional compliance requirements related to the sponsorship and oversight of 403(b) employee benefit plans. Regulations were passed in late 2007 by the Department of Labor (DOL) which eliminated previous exemptions related to the Form 5500 for 403(b) plans. As a result, beginning with 2009 plan years, most 403(b) plans are now subject to the same reporting and auditing requirements as other employee benefit plans under ERISA. Certain plans, primarily church and governmental plans, continue to be exempt from ERISA oversight and these new regulations. In addition, certain 403(b) plans might qualify for “safe harbor” status under DOL regulation 29 CFR § 2510.3-2(f) and would therefore be exempt from the new regulations.
The new regulations require that all 403(b) plans have a formal written plan document describing specific plan elements. The purpose of this documentation is to provide better information to plan participants regarding the allocation of responsibilities among the plan sponsor and service providers.
The plan document is required to provide, at a minimum, the following information:
- Eligibility for participation,
- Non-discrimination rules,
- Benefits available under the plan,
- Applicable limitations,
- Investment options or contracts available under the plan, and
- The timing and form of distributions available from the plan.
The deadline to have this document in place was December 31, 2009. Organizations that have not met this deadline should contact an attorney with ERISA expertise about the necessary corrective steps.
In addition to a written plan document, 403(b) plan sponsors must now file a more comprehensive Form 5500 related to these plans, similar to what is required for 401(k) plans.
Historically, the Form 5500 requirement for 403(b) plans encompassed a brief one-page submission that disclosed limited information about the plan. Under the new guidelines, significantly more information will need to be presented on the Form 5500 for 403(b) plans.
For larger plans, audited financial statements for the plan will need to accompany the Form 5500 submission.
Information now required to be disclosed on the Form 5500 includes:
- The number of plan participants as of the beginning of the plan year and at the end of the plan year as well as certain other information related to the status of participants,
- Detail of administrative expenses paid by the plan, segregated by service provider, for expenses over a certain threshold, and
- Complete financial information for the plan, including a statement of net assets as of the beginning and end of the plan year and a statement of changes in net assets for the plan year.
Compiling the information necessary for completion of the 2009 Form 5500 could be a complicated and prolonged process. Plan sponsors and administrators are encouraged to begin that process now, if it has not already commenced.
For those 403(b) plans that allow, or have historically allowed, participants to establish individual annuity accounts or maintain individual custodial accounts, compiling a complete participant census with corresponding account balances could be particularly challenging.
In light of this, the DOL issued Field Assistance Bulletin (FAB) 2009-2 in July 2009. The FAB provides enforcement relief for plan sponsors that receive anything other than an unqualified audit opinion (or a “limited scope” disclaimer permitted under 29 CFR § 2520.103-8) as a result of the auditor not being able to obtain sufficient evidential matter regarding the completeness of the plan’s participant population and their corresponding account balances.
The DOL and the Employee Benefits Security Administration have indicated they will not reject a Form 5500 filing for plans that receive a qualified, adverse or disclaimed audit opinion due to the exclusion of pre-2009 contracts provided that these contracts meet the following four criteria:
- The contract or account was issued to a current or former employee before January 1, 2009,
- The employer ceased to have any obligation to make contributions (including employee salary reduction contributions) and in fact ceased making contributions to the contract or account before January 1, 2009,
- All rights and benefits under the contract or account are legally enforceable against the insurer or custodian of the contract by the individual owner, without any involvement of the employer, and
- The individual owner of the contract is fully vested in the contract or account.
Whether a plan will actually require a financial statement audit to support the Form 5500 filing is based on the number of plan participants as of the beginning of the plan year.
A plan participant is defined by the DOL as any employee who is eligible to participate in the plan (even those employees who have elected not to participate are considered eligible, if they meet the eligibility requirements prescribed in the plan document) and any former employees who continue to maintain account balances in the plan.
Generally, those plans with more than 100 eligible employees as of the beginning of a plan year are required to submit audited financial statements as an attachment to the Form 5500 for that plan year. In certain instances, this threshold can be raised to 120 plan participants as of the beginning of the plan year.
The deadline for filing the Form 5500 is seven months after the plan’s year-end, with a filing extension available for an additional two and a half months. For 2009, the Form 5500 is required to be filed electronically using the DOL’s new ERISA Filing Acceptance System II (EFAST 2).
Plan sponsors should be preparing for this new filing process now. To prepare, sponsors should register with the DOL to obtain their “signer credentials” and communicate with the service providers that prepare their Forms 5500 in order to better understand the entire process for submitting forms electronically.
Sponsors that prepare their own Form 5500 will need to select software that best facilitates the new electronic filing procedures.
Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.
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