The 2009 calendar year is a time of great change for employers sponsoring Section 403(b) tax-sheltered annuity plans. The first new IRS regulations in over 40 years, which became effective on January 1, 2009, have redefined a sponsoring employer’s roles and responsibilities with respect to these programs. Under those regulations, 403(b) plans must be maintained pursuant to a “written plan” (although, in separate guidance, the IRS has given plan sponsors until the last day of 2009 to have this “written plan” in place).
Perhaps just as significantly, 2009 marks the first year that ERISA-covered 403(b) plans are subject to expanded Form 5500 reporting requirements. ERISA 403(b) plans include those (other than church plans) that are maintained by Code Section 501(c)(3) organizations, and not by public schools. For plans with more than 100 participants, ERISA requires the engagement of an independent accountant to audit the plan’s financial statements. As icing on the cake, 2009 annual reports will now be required, for the first time, to be filed electronically under the Department of Labor’s new “EFAST 2” filing system.
For plan years beginning before January 1, 2009, ERISA-covered 403(b) plans were subject to very limited Form 5500 reporting. Plan administrators were required to complete a few specific lines on the Form 5500, but they were not required to provide any financial information or to attach any schedules. And even large 403(b) plans were not required to obtain an audit. For plan years beginning on or after January 1, 2009, however, ERISA-covered 403(b) plans are subject to the same Form 5500 reporting requirements as qualified plans, including the audit requirement for large plans.
These new reporting (and audit) requirements present a significant challenge for 403(b) plans, because many such plans are merely a “collection” of individual annuity contracts or custodial accounts. Moreover, many of these plans have more than one investment provider, or they have historically allowed participants to make “contract exchanges” to investment providers that no longer have (or perhaps never had) any connection to the plan sponsor. As a result, employers sponsoring such plans have been wondering how they will be able to gather the information needed to complete the annual report for the 2009 plan year. Likewise, auditors engaged to audit such plans have been wondering what assets they will be expected to audit.
In response to concerns expressed by 403(b) plan sponsors (as well as investment providers, consultants, advisors, and auditors), the DOL has issued Field Assistance Bulletin (“FAB”) 2009-2. This FAB provides transition relief for administrators of 403(b) plans who are otherwise required to comply with the expanded Form 5500 reporting requirements for the first time in 2009.
Taking direction from prior IRS guidance as to which 403(b) contracts or accounts are subject to the “written plan” requirement, FAB 2009-2 provides that, for purposes of the Form 5500 reporting requirements, the DOL will not consider an annuity contract or a custodial account to be part of the Section 403(b) plan if the investment contract satisfies the following requirements:
- 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 deferral contributions), and in fact ceased making all such contributions to the contract or account, before January 1, 2009;
- all of the rights and benefits under the contract or account are legally enforceable against the insurer or custodian by the individual participant, without any involvement by the employer; and
- the participant is fully vested in the contract or account.
Under this FAB, most 403(b) investments with “discontinued” investment providers (i.e., providers who, as of January 1, 2009, no longer had a “payroll slot” that allowed them to receive ongoing contributions) will be exempt from the Form 5500 reporting requirements. The same is true of 403(b) investments that were transferred — prior to January 1, 2009 — to an investment provider that never had a payroll slot. This means that 403(b) plan administrators will not be required to include these assets on the financial schedules (Schedules I or H) that are attached to the annual report, and that auditors of large 403(b) plans will not be required to take these assets into account when auditing those financial schedules.
The FAB also provides that current or former employees whose only accounts or contracts under a 403(b) plan are excludable under the transition relief described above need not be counted as participants for Form 5500 annual reporting purposes. This will allow some plans that might otherwise have been “large” plans (i.e., plans with 100 or more participants as of the beginning of the plan year) to file as “small” plans (generally, plans with fewer than 100 participants as of the beginning of the plan year). This, too, could be significant, since most “small” plans will be able to use the Form 5500-SF (Short Form 5500), and all “small” plans are exempt from the independent audit requirement.
Finally, the FAB clarifies that the DOL will not reject a Form 5500 with a “qualified,” “disclaimed,” or “adverse” audit opinion if the accountant expressly indicates that the sole reason for such an opinion was because certain pre-2009 contracts were not covered by the audit or included in the plan’s financial statements. Other than this very narrow relief, accountants engaged to perform audits of Section 403(b) plans are expected to perform audit procedures and report in accordance with generally accepted auditing standards, as required by ERISA and relevant DOL regulations.
No doubt, this DOL guidance will come as welcome relief for sponsors of Section 403(b) plans, as well as the accountants who must audit those plans.