Previously, the IRS and Department of Labor ("DOL") announced changes to the Form 5500 reporting requirements for tax-sheltered annuity programs under Internal Revenue Code section 403(b) ("403(b) Plans"). On July 20 the DOL issued guidance on 2009 Form 5500 requirements for 403(b) Plans and provided transitional relief for plan administrators of 403(b) Plans who make a good faith effort to comply with the new requirements.
For plan years beginning on or after January 1, 2009, plan administrators of "large" 403(b) Plans, i.e. plans generally with more than 100 participants, must file audited financial statements with the plan's Form 5500. Administrators of "small" 403(b) Plans, i.e. plans generally with less than 100 participants, are eligible for a waiver from the audited financial statement requirement and also may use the Short Form 5500, a new simplified form for small plans invested in certain types of assets.
Since these reporting requirements are new for 403(b) Plans in 2009, the DOL decided to provide relief to 403(b) Plan administrators who make a good faith effort to comply with them. Under the DOL's newly released guidance, 403(b) Plan administrators that make good faith efforts to comply with the annual reporting requirements need not treat annuity contracts and custodial accounts as part of the employer's ERISA plan or as plan assets for purposes of annual reporting requirements, provided that:
- the contract or account was issued to a current or former employee before January 1, 2009;
- the employer ceased to have any obligation to make contributions (including salary reduction contributions) and in fact ceased making contributions to the contract or account before January 1, 2009;
- 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
- the individual owner of the contract is fully vested in the contract or account.
In addition, the DOL also provided guidance regarding counting of plan participants for Form 5500. For Form 5500 reporting purposes, a plan does not need to count as a plan participant any current or former employee with only contracts or accounts that are excludable from the plan's Form 5500 or Short Form 5500 under the relief rules.
Finally, the Employee Benefit Security Administration stated they will not reject a 403(b) Plan's Form 5500 on the basis of an accountant's "qualified," "adverse" or "disclaimer" opinion if the accountant expressly states that the only reason for the opinion was because the pre-2009 contracts were not covered by audit or included in the 403(b) Plan's financial statements.
This guidance and transitional relief should provide some reassurance to 403(b) Plan administrators that while the new reporting requirements go into effect for plan years beginning on or after January 1, 2009, so long as the 403(b) Plan makes a good faith effort to comply with the new annual reporting requirements, the DOL will not penalize the plan.