The Employee Benefits Security Administration has issued Field Assistance Bulletin (“FAB”) 2010-01, which provides guidance on the annual reporting and ERISA Coverage requirements for 403(b) plans.
By way of background, in July of 2009, the EBSA issued FAB 2009-02, which addressed the application of certain Form 5500 and Form 5500-SF annual reporting and auditing requirements for 403(b) plans. Specifically, FAB 2009-02, provided transitional relief from those requirements for annuity contracts and custodial accounts entered into or established prior to 2009. The FAB stated that, for purposes of the 403(b) plan’s annual reporting and related audit requirements, an annuity contract or custodial account does not need to be treated as part of the plan, or as plan assets, if it meets the following conditions: (1) the contract or account was issued to a current or former employee before 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 2009; (3) all of the rights and benefits under the contract or account are legally enforceable against the issuer or custodian by the individual owner of the contract or account without any involvement of the employer; and (4) the individual owner of the contract or account is fully vested (the “Transitional Relief”).
The EBSA issued FAB 2010-01 to answer some of the questions it received on FAB 2009-02, and on the “safe harbor rule” at 29 CFR 2510.3-2(f), which excludes qualifying 403(b) plans from ERISA (the “safe harbor”). Here are some of the more interesting points made in the FAB:
–An annuity contract or custodial account may qualify for the Transitional Relief even if it is known to the plan administrator, and even if the employer provides information to the issuer or custodian about the employee who ownes the contract or account, e.g., his or her employment status;
–The Transitional Relief is not available if the employer forwards, through salary reduction, an employee’s loan repayments for deposit in the annuity contract or custodial account, but the relief would be available if the employee made the repayments directly to the issuer or custodian;
–The Transitional Relief does not apply to any annuity contract or custodial account of a new issuer or custodian receive in an exchange after 2009 for an existing contract or account.
–A final contribution made in 2009 to an annuity contract or custodial account for the year 2008 would not cause the contact or account to be ineligible for the Transitional Rule.
–The Transitional Relief applies for purposes of ascertaining the number of a 403(b) plan’s participants for reporting purposes, including the determination of whether or not the 403(b) plan is a large plan, and is therefore required to have its financial statements audited. An employee whose only assets in the 403(b) plan are contracts or accounts that meet the Transitional Rule, and who is not otherwise eligible to make salary reduction contributions under the 403(b) plan, need not be counted as a participant for purposes of this determination .
–It is the responsibility of the plan administrator to determine whether any annuity contract or custodial account qualifies for the Transitional Relief.
–The Transitional Relief does not apply to any annuity contract or custodial account exchanged , in accordance with Treasury regulations and IRS requirements, for another contract or account with a new issuer or custodian after 2009.
–The safe harbor under DOL regulation 29 CFR 2510.3-2(f) can be available, even if the 403(b) plan has-optional features- such as participant loans- so long as the 403(b) plan’s provider (i.e., contract issuer or custodian), as opposed to the employer or a third party administrator, makes the discretionary determinations about those features.
–The safe harbor would not be available if the employer may change 403(b) providers and unilaterally move employee funds from one provider to contracts or accounts of another provider.