The U.S. Labor Department should take another look at the independent audit guidelines that apply to nonprofit employers’ 403(b) retirement plans.
The American Society of Pension Professionals and Actuaries (ASPPA), Arlington, Va., and an ASPPA affiliate, the National Tax Sheltered Accounts Association (NTSAA), Arlington, Va., give that recommendation in a written version of testimony presented by Kristi Cook, an ASPPA and NTSAA representative, at a recent 403(b) hearing organized by the federal Advisory Council on Employee Welfare and Pension Benefit Plans.
A 403(b) plan is a type of defined contribution retirement plan sponsored by a school or other nonprofit organization. The Internal Revenue Code included provisions for 403(b) plans starting in 1958 – 16 years before the Employee Retirement Income Security Act of 1974 was enacted and long before for-profit employers began offering 401(k) plans.
Over the years, many 403(b) plans have taken actions in good faith that conflict with new Internal Revenue Service (IRS) regulations and recent U.S. Labor Department guidance, and the sponsors of those plans need help to avoid facing substantial penalties and fines for failing to comply with the newly clarified reporting and disclosure requirements, Cook said
The changes affect matters such as discretionary decisions involving plan investments, the timing of adoption of plan documents, and audit and financial statement issues, Cook said.
The government once exempted 403(b) plans from many of the kinds of reporting requirements that apply to 401(k) plans. In 2009, federal regulators began requiring most 403(b) plans subject to ERISA that are not governmental plans or church plans to start filing Form 5500 benefit plan reports with the Internal Revenue Service (IRS) and the U.S. Labor Department.
The government began requiring affected 403(b) plans with more than 100 participants to file independent audits of their financial statements.
ASPPA and NTSAA members are still getting many calls from 403(b) plan sponsors seeking help with understanding and complying with the Form 5500 reporting and audit requirements, Cook said.
“One of the problems in this area is the lack of communication/education opportunities among peers within the 501(c)(3) organization community and easy access to education on regulatory changes and updates,” Cook said. “Unfortunately in the non-profit sector, there are few trade associations that are available, and those that are available very rarely have educational programs that involve retirement plans.”
ASPPA and the NTSAA are recommending that the Labor Department expand the exemption from the independent audit requirement, possibly by creating a new definition of “active participants” for purposes of applying the exemption.