Form 5500 Reporting and Audit Relief for 403(b) Plans
On July 20, 2009, the U.S. Department of Labor (DOL) released Field Assistance Bulletin No. 2009-02 (FAB 2009-02) which provides enhanced guidance and transition relief for 403(b) plan administrators who make a good faith effort to comply with the new Form 5500 annual reporting requirements for plans covered by Title I of ERISA.
Effective for plan years beginning on or after January 1, 2009, both large and small 403(b) plans are subject to increased reporting requirements. Specifically, large 403(b) plans – generally plans with 100 or more “eligible participants” as of the beginning of the plan year – are required to have an independent audit as part of the plan’s Form 5500 filing requirements. Many plan sponsors expressed concern with the new audit requirement given the historical treatment of 403(b) plans. Prior to 2009, there was an abbreviated Form 5500 filing requirement and no audit requirement. Therefore, many 403(b) plan sponsors never tracked the aggregate amount of plan assets. The new audit requirement could make it costly, and in some cases impossible, to obtain all financial information to meet the 2009 reporting requirements.
In response to these concerns, the DOL released FAB 2009-02 which exempts from the reporting requirements annuity contracts and custodial accounts for which an employer has no ongoing contribution obligation. Specifically excluded from plan assets for purposes of annual reporting are any contracts or accounts:
(1) issued to a current or former employee before January 1, 2009;
(2) where the employer ceased to have any obligation and in fact ceased making contributions (including salary deferral contributions) prior to January 1, 2009;
(3) where all rights and benefits under the contract or account are legally enforceable against the insurer or custodian by the individual owner of the contract or account without any involvement by the employer; and
(4) where the individual owner of the contract is fully vested in the contract or account.
FAB 2009-02 states that current or former employees with only contracts or accounts that are excludable from reporting under the provisions noted above are also exempt from being counted as “eligible participants” for Form 5500 reporting purposes. This provision may be important in establishing whether a plan must meet the expanded “large” plan filing requirements.
Early identification and resolution of potential issues will make for a smoother implementation of the new 403(b) reporting requirements. We can assist plan sponsors now in performing a review and analysis of current plan documents and operations to identify those assets which will be subject to financial disclosure and possible audit. For more information about the application of FAB 2009-02 and related services we can provide, please contact the expert listed below at (800) 270-9629.