In Field Assistance Bulletin No. 2009-02, the Department of Labor (the “DOL”) provides some relief on the Form 5500 reporting requirements for 403(b) plans, with respect to funding vehicles issued or established before January 1, 2009.
A 403(b) plan is a retirement plan which is intended to meet the requirements of Section 403(b) of the Internal Revenue Code, and which may cover only the employees of public schools, employees of certain tax-exempt organizations, and certain ministers. A 403(b) plan may be funded through one or more annuity contracts, or through custodial accounts invested solely in mutual funds. Generally, a 403(b) plan of a tax-exempt organization is subject to the reporting requirements of Title I of ERISA, including the requirement that a Form 5500 be filed, while a 403(b) plan of a public school or a church is not subject to these requirements.
The DOL has separately published revisions to Form 5500 and the related final regulations, generally effective for Form 5500s to be filed for plan years beginning after 2008. These revisions eliminated special limited reporting for 403(b) plans. Under the new rules, “large” 403(b) plans (generally plans with 100 or more participants) subject to ERISA Title I are required to include audited financial statements with their Form 5500. Small 403(b) plans (generally fewer than 100 participants) subject to ERISA Title I need not comply with the audit requirement. They will typically be able to use the Form 5500-SF (Short Form 5500); however, they must report aggregate financial information regarding the plan on this form. A concern has arisen that the historical treatment of 403(b) plans as a collection of individual annuity contracts and custodial accounts, with respect to which employees could engage in a range of actions without the consent or involvement of an employer or plan administrator, could make it costly, and in some cases impossible, to identify and obtain the financial information required to be included in the revised Form 5500s about certain of these contracts and accounts.
In view of this concern, the DOL has provided the following relief in Field Assistance Bulletin No. 2009-02. In preparing a Form 5500 (including a Form 5500-SF), the administrator of a 403(b) plan does not have to treat an annuity contract or custodial account as part of the 403(b) plan, provided that:
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 or account is fully vested in the contract or account.
Further, current or former employees with only contracts or accounts that need not be included in the 403(b) plan’s Form 5500 or Form 5500-SF under the above transition relief do not have to be counted as participants covered under the plan for purposes of preparing the Form 5500. The DOL will not reject a Form 5500 on the basis of a “qualified,” “adverse” or disclaimed audit opinion, if the accountant expressly states that the sole reason for such an opinion is due to any contract or account, which is subject to the above relief, not being covered by the audit or included in the 403(b) plan’s financial statements.