Get Moving Now!
The wide gap between the regulatory requirements for 401(k) and 403(b) plans is about to disappear. It’s important to take effective measures now to prevent regulators from cutting into your wallet. And, you don’t want to ignore the IRS. The new requirements issued July 24, 2007 apply to ALL 403(b) plans. Fortunately, the extra requirements, while burdensome, are not insurmountable.
First and foremost, your 403(b) plan needs to have a written plan document. The requirement to have one is December 31, 2009. This document can be a standalone document or a collection of documents. Regardless, it must be maintained by the employer (plan sponsor). Custodial agreements must also be incorporated by reference. The basics of a plan document include eligibility requirements, benefits, timing and form of distributions, available investments, dollar limitations, and non-discrimination rules. The plan document may also include terms regarding elective deferral catch-ups, auto-enrollment, loans, and hardships.
Who is Exempt?
If you run a government plan, you are exempt from the new 403 (b) regulations. Churches are also exempt from the new requirements. However, the IRS and DOL will closely monitor whether plan sponsors are indeed a government or a church. With respect to churches, the further away the activity of the plan sponsor is from a steeple church (a related school, hospital, charity, etc.) the more likely the exemption will not apply. The IRS and DOL do not want related entities to churches to claim the exemption.
The Department of Labor issued Field Assistance Bulletin 2009-02 in July 2009 with respect to 403(b) Form 5500 filings. The bulletin indicates that the DOL will not reject a filing solely due to a qualified, adverse, or disclaimed opinion (for reasons other than 29 CFR 2520.103-8) that occurs because of an omission of pre-2009 annuity contracts or custodial accounts. This relief applies to plans large and small. The bulletin applies to 2009 and years thereafter. This bulletin provides enforcement not audit relief. Any auditor that issues such an opinion under the circumstances above must complete all other audit procedures.
The enforcement relief does come with some criteria. The contract or account must be issued to a current or former employee before January 2009. Furthermore, the employer(s) must cease making contributions before January 2009. The individual owner of the contract must be fully vested. The rights and benefits of the contract must not be legally enforceable to the employer, but rather the insurer or custodian of the contract.
ERISA requires the plan audit to be performed in accordance with generally accepted auditing standards. The use of the enforcement relief is likely to cause a departure from an unqualified or limited scope opinion.
Next Steps for You to Take
- Determine whether the plan has a current plan document.
- Determine whether your plan meets the requirements for a plan audit.
- Ascertain whether plan participant records are accurate and complete.
- Design and implement proper internal controls over the plan’s financial reporting process.
- Assign responsibility for the plan’s financial reporting function.
- Ascertain whether the plan is in compliance with its tax exemption.
This process will not be easy but with some preparation you can save yourself and the participants from the headache of IRS and DOL troubles.