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.
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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.