SunGard Relius

403(b) practitioners have been extremely concerned about filing 403(b) plan Form 5500s for the 2009 plan year. Not only must these practitioners adjust (along with everyone else) to the new realities of electronic filing, but for the first time 403(b) plans will have to file full Forms 5500 with all the schedules. Large plans will need an audit.

This is difficult if not impossible for many plans because, thanks to now obsolete Rev. Rul. 90-24, many participants have transferred assets to outside vendors. The employer has little or no recourse to obtain the financial information the employer would need to complete Schedule H or I.

In a long awaited response, the IRS has just issued FAB 2009-02 which provides important transition relief for 403(b) plans. Solely for purposes of Form 5500 (including any related audit), the DOL will not regard an annuity or custodial account as a part of an ERISA 403(b) plan if the investment meets the following requirements:

1. the contract or account was issued to a current or former employee before January 1, 2009;
2. 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;
3. 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; and
4. the individual owner of the contract is fully vested in the contract or account.

Most 403(b) investments from discontinued vendors who, as of January 1, 2009, no longer had “a payroll slot,” or from transferred vendors who never had a payroll slot, will satisfy these tests. As a result, employers will not need to list these investments on Form 5500 and auditors will not need to take these investments into account in processing a Schedule H audit. In addition, if an employee’s only investments meet those criteria (i.e., there are no “countable” investments), the employer does not need to count the employee as a participant. In some cases, this may enable an employer to file as a small plan, rather than a large plan.

The FAB includes additional guidance regarding 403(b) audits.

Overall, this is welcome relief and should allow 403(b) plans to satisfy their new reporting responsibilities.

403(b) Plans for 401(k) Practitioners - A three-part program – July 22-24, 2:00-3:40 p.m. ET (if you miss this date, look for the Archived web seminar!) More and more qualified plan administrators find themselves being brought into the 403(b) marketplace. It is a rapidly changing marketplace, with a new set of regulations that just went into effect which make 403(b) plans more like 401(k) plans than they ever have been. But while there are many similarities between 403(b) plans and 401(k) plans, there are also several profound differences. Register Now.

The Advanced Pension Conference in Chicago (September 2-4) will provide you with many opportunities to learn more about EFAST2. Ask your questions to the professionals who have been dealing with the operational issues and the Department of Labor. Learn more.