To comply with these regulations, a 403(b) plan must have a written plan document in place. The IRS stipulated that it would treat 403(b) plans as meeting the requirements for calendar year 2009, if:
· By December 31, 2009, the sponsor has adopted a written plan document intended to satisfy the requirements.
· During 2009, the plan sponsor operates the plan according to a reasonable interpretation of the applicable Internal Revenue Code section and related regulations.
· By the end of 2009, the plan sponsor makes its best effort to retroactively correct any operational failures during the 2009 calendar year, in order to conform to its written plan.
Additionally, the Department of Labor (DOL) eliminated the exemption previously granted to 403(b) plans from annual Form 5500 reporting, disclosure and audit requirements. Those 403(b) plans that do not fall under the safe harbor rules (see side panel for details) are required to file Form 5500 with the DOL and, in some cases will need to include audited financial statements, for plan years beginning on or after January 1, 2009.
The new Form 5500 reporting and audit requirements will require sponsors to plan ahead to meet these challenges. We provide here common questions and answers to help plan sponsors prepare:
403(b) plans are generally retirement plans for employees of public educational institutions, certain 501(c)(3) tax-exempt charitable organizations, and hospitals. Plans that fall within the DOL's "safe harbor" rules are not required to file Form 5500 or to have an independent audit.
Safe harbor rules state that a program for the purchase of annuity contracts or custodial accounts in accordance with provisions set forth in section 403(b) of the Internal Revenue Code and funded solely through employee salary withholdings, and which are not "established or maintained" by an employer, are not considered to be subject to ERISA and therefore not subject to the Form 5500 reporting filing or the independent audit of the financial statements, provided that certain factors are present. Plan sponsors should consult their retirement provider, consultant and/or legal counsel to evaluate the safe harbor rules.
What are the new Form 5500 reporting requirements for 403(b) plans?
Sponsors of 403(b) plans will need to determine whether their plan falls under the "large" or "small" plan filing requirements. Large plans (generally those with 100 or more participants at the beginning of the plan year) will be required to file Form 5500 with required schedules, along with audited financial statements. Small plans (generally those with fewer than 100 participants at the beginning of the plan year) may be eligible to file the Short Form 5500 with less detailed schedules and are not required to file audited financial statements.
In the past, 403(b) plans were subject to very limited Form 5500 reporting requirements. Under the new reporting requirement, beginning with the 2009 Form 5500 filing, 403(b) plans will be required to attach additional schedules to the Form 5500, depending on the size of the plan.
The additional Form 5500 schedules may include:
1. Schedule A (Insurance Information), which is required for both large and small plans. This Schedule requires disclosure of the plan's investment with insurance companies such as guaranteed investment contracts (GICs).
2. Schedule C (Service Provider Information), which is required for large plans and includes disclosure of compensation received by all persons who provided services to the plan totaling $5,000 or more.
3. Schedule H (Large Plan Financial Information) or Schedule I (Small Plan Financial Information), which includes disclosure of the plan's assets, liabilities, net assets, income and expenses. Information on these Schedules must agree or reconcile with the plan's audited financial statements.
What are the deadlines for filing Form 5500 with the DOL?
Form 5500 is due by the last day of the seventh calendar month after the end of the plan year. A one-time extension of 2 ½ months will be granted upon filing Form 5558 with the DOL before the original due date. For example, for years ending December 31, 2009, the Form 5500 is due August 2, 2010; with an extension, Form 5500 would be due October 15, 2010.
Are there any other Form 5500 filing requirements?
Yes, the DOL requires comparative financial periods to be presented for the statement of net assets available for benefits. Therefore, the audited financial statements must cover both 2009 and 2008 plan years. Plan sponsors will need to provide the auditors with the plan's 2009 and 2008 financial statement activity and plan records.
How can sponsors prepare for the annual financial statement audit?
By ensuring that the 403(b) plan has adopted the necessary plan documents, implemented policies and procedures, and gathered the necessary documentation, the plan sponsor can help to make the audit go smoother.
Immediate actions that plan sponsors can take:
· Determine who are considered to be participants in the plan.
· Identify where the plan assets are held.
· Determine if the plan is required to file a Form 5500 (Short Form 5500 or Form 5500 with audited financial statements).
· Review the list of questions to expect from your auditor (for large plans). See 403(b) plans - Questions to Expect From Your Auditor.
· Review the sample auditor request list and begin to gather plan information (for large plans).See Sample Auditor Request List for plan Information.
Now is the time for plan sponsors to evaluate the new reporting requirements and work with their service providers to prepare for the road ahead.