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403(b) Sponsors Get Relief

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The U.S. Labor Department says it will go easy on tax-exempt employers that sponsor 403(b) tax-sheltered annuity programs when new reporting rules take effect.

Robert Doyle, a director with the Employee Benefits Security Administration, an arm of the Labor Department, describes the transition relief — which could help some nonprofit plan sponsors cope with the challenge of collecting participant asset data now required by the government — in EBSA Field Assistance Bulletin 2009-02.

The regulations and relief will have no effect on 403(b) annuity plans sponsored by governments and religious ministries, which are exempt from Employee Retirement Income Security Act requirements.

The regulations and relief will apply to 403(b) plans sponsored by other types of tax-exempt employers, which are subject to ERISA rules, Doyle writes in the field assistance bulletin.

In the past, Congress, the Internal Revenue Service and the Labor Department treated 403(b) plans as if they were collections of separate annuities, rather than unified plans, and they required less detailed plan information.

Now that the government is starting to make the rules that apply to 403(b) plans more similar to the rules that apply to 401(k) plans, it is beefing up Form 5500 return reporting requirements. Recently, the Labor Department began to require “large” ERISA-covered 403(b) plans — those with 100 or more participants — to file audited financial statements with their Form 5500 filings, and it required small ERISA-covered 403(b) plans to report aggregate plan financial information.

The requirements apply to plan years that started after Jan. 1, 2009.

The tradition of treating 403(b) plans as collections of separate individual contracts, with the assumption that employees could take many actions involving the plans without the involvement of employers or plan administrators, “could make it costly, and in some cases impossible, to identify and obtain financial information about certain pre-2009 contracts and custodial accounts to which the employer is no longer making employer contributions or forwarding employee salary reduction contributions,” Doyle writes.


If administrators of ERISA-covered 403(b) plans “make good faith efforts to transition for the 2009 plan year to ERISA’s generally applicable annual reporting requirements,” the administrators can escape from having to treat annuity contracts and custodial accounts as part of a plan, if:

1. The contract or account was issued before Jan. 1, 2009.

2. The employer ceased to have any obligation to make contributions, and stopped making any contributions, before Jan. 1, 2009.

3. The employer is not involved with the contract or account, and the individual owner of the contract or account must deal with the insurer or custodian in connection with efforts to enforce any legal rights or benefits.

4. The individual owner of the contract is fully vested in the contract or account.

The “plan participants” who can be excluded from plan reports need not be counted as plan participants for Form 5500 annual reporting purposes, Doyle writes.

In addition, the Labor Department will not reject a Form 5500 if an accountant gives a plan a “qualified,” “adverse” or “disclaimed” accounting opinion, if the accountant says the sole reason for the opinion was due to the fact that the pre-2009 contracts were not covered by the audit or included in the plan’s financial statements, Doyle writes.

Doyle notes that there may be other barriers that may make complying with the new ERISA-covered 403(b) plan reporting rules difficult or impossible for the 2009 plan year.

“The guiding principle must be to ensure that appropriate efforts are made to act reasonably, prudently, and in the interest of the plan’s participants and beneficiaries,” Doyle writes.

“The [Labor] Department has noted in other contexts relating to ERISA’s recordkeeping requirements that whether lost or destroyed records can, or should be, reconstructed and whether the persons responsible for retention of the plan’s records are, or should be, personally liable for the costs incurred in connection with the reconstruction of records or other consequences of their loss or destruction is necessarily dependent on the facts and circumstances of each case,” Doyle writes.

But the accountants who conduct employee benefit plan audits should tell plan administrators about any issues discovered that could materially affect a plan’s ability to comply with the new ERISA reporting regime, Doyle writes.

A copy of the bulletin explaining the new transition relief available to sponsors and administrators of ERISA-covered 403(b) plans is available here.


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