Don’t get your hopes up – the written plan document requirement has not been again extended; however some of the more onerous filing requirements have been eased for 403(b) Plan sponsors.
As most sponsors of 403(b) retirement plans already know, all 403(b) tax-deferred annuity or custodial account arrangements must have been in operational compliance with comprehensive new federal IRS regulations by end of year 2008. In general, 403(b) retirement plans are offered by employers such as public schools, other governmental entities or 501(c)(3) organizations. These new requirements obligated many such employers offering a 403(b) arrangement to update annuity contracts, to put in place appropriate procedures and controls for monitoring and ensuring compliance with 403(b) requirements and to obtain necessary information and cooperation from 403(b) vendors. The infamous written plan document requirement which necessitates that 403(b) plans, for the first time, be documented in a comprehensive written plan was extended until year end 2009. However, end of year 2009 is fast approaching and if you haven’t yet finalized your plan documents you are running out of time.
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Background: If you can’t keep track of the ever-changing requirements, here is a bit of a history lesson. In July of 2007, final regulations under Internal Revenue Code Section 403(b) were published. The final regulations require sponsors of § 403(b) plans to adopt and maintain a written plan that satisfies, in both form and operation, the requirements of the final regulations. The final regulations also set January 1, 2009 as the compliance deadline for the establishment of a written plan document. However, on December 11, 2008, the IRS issued Notice 2009-3 which provided relief for sponsors of 403(b) plans with respect to the written plan requirement. This relief is predicated on the requirement that i) on or before December 31, 2009, the sponsor of a plan adopts a written 403(b) plan that is intended to satisfy the requirements of 403(b) (including the final regulations) effective as of January 1, 2009 and that ii) during 2009, the sponsor operates the plan in accordance with a reasonable interpretation of 403(b) and the final regulations; and that iii) before the end of 2009, the sponsor makes its best efforts (in accordance with acceptable methods) to retroactively correct any operational failure during the 2009 calendar year to conform to the terms of the written plan.
Filing: Separately, the Department of Labor (“DOL”) changed the 2009 Form 5500 filing requirements. Form 5500 is the annual report that most non-governmental employee benefit plans must file with the DOL. In the past, 403(b) plans which were subject to Employee Retirement Income Security Act of 1974 (“ERISA”) had only minimum 5500 filing requirements. Determining whether or not a 403(b) plan is subject to ERISA is in and of itself a rather dicey undertaking; however, in general, commercial and non-profit 403(b) plans will be subject to ERISA, whereas governmental and church plans will not.
Now these 403(b) plans subject to ERISA, which never before had to have audited financial statements, may be required to have the plan’s financial statements audited. These audit requirements apply to plans of 100 participants or more. Though they may apply for a waiver of the audit requirements, small plans will still be required to report aggregate financial information about the plan. The audited filing rules will require financial data for both the 2009 filing year as well as the 2008 plan year, as the 2009 Form 5500 contains a comparative statement of net benefits which must be based upon 2008 financial information. Since 403(b) plans have historically been more like individual accounts than one comprehensive plan, typically 403(b) plans have not received a statement of net assets at the plan level. Thus, the requirement to have financial statements and, moreover, audited financial statements is a big change for 403(b) sponsors. The DOL appears to have recognized the onerous implications of the new filing requirements and the likelihood of noncompliance and issued transitional relief in Field Assistance Bulletin 2009-02. In general, a 403(b) sponsor will receive some relief from the filing requirements and will not need to include on the 2009 Form 5500 any individual accounts which meet all 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 reduction contributions), and in fact ceased making 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 owner of the contract or account without any involvement by the employer;
- The individual owner of the contract is fully vested in the contract or account.
This relief may indeed be good news for some 403(b) plan sponsors. Nonetheless, the end of year deadlines loom and now is the time, if you have not already done so, to finalize your plan documents and procedures and to get your financial statements in order.
Year End To Do’s
- Finalize written plan document.
- Gather all required vendor information.
- Ensure operational compliance.
- Correct any operational failures.
- Gather 2008 financial data (if required).
- Determine who is going to audit your plan and start gathering the necessary information (such as personnel and payroll records, plan records, vendor information, etc).
- Be prepared to gather 2009 financial data, if required.
- Be prepared to file your 5500 (plans based on calendar years must file the 2009 5500 by July 31, 2010 or October 15, 2010 if an extension is filed.
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