403(b) Form 5500 Relief
Rev. 08/07/09, E-mail Alert 2009-12

Form 5500 Transition Relief for 403(b) Plans
Plan year 2009 is the first year that 403(b) arrangements are required to file a full Form 5500. There has been a growing concern in the entire industry about the handling of the impossible, i.e. how will employers possibly gather financial information on old contracts and custodial accounts for purposes of adding the totals for the Form 5500 required financials. Thus, there was a great need for guidance. On July 20, 2009, the DOL issued Field Assistance Bulletin 2009-2 to provide Form 5500 transition relief for 403(b) arrangements for 2009.

In FAB 2009-2, the DOL stated that it understands that administrators of 403(b) plans subject to Title I of ERISA face compliance challenges in transitioning to ERISA’s generally applicable annual reporting requirements for the 2009 plan year. Therefore, DOL has provided transition relief for administrators of 403(b) plans that make good faith efforts to transition to the Form 5500 requirements for the 2009 plan year. This relief is limited to the Form 5500 annual reporting requirements, including the large plans requirement to include the report of an independent qualified public accountant.

Transition Relief Rule
The administrator of a 403(b) plan does not need to treat annuity contracts and custodial accounts as part of the employer’s Title I plan or as plan assets for purposes of ERISA’s annual reporting requirements 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 is fully vested in the contract or account.

Moreover, current or former employees with only contracts or accounts that are excludable from the plan’s Form 5500 or Form 5500-SF under the above transition relief do not need to be counted as participants covered under the plan for Form 5500 annual reporting purposes.

* Note that the fact that an individual’s contract or account rights are reflected by an individual certificate under a group annuity contract held in the employer’s name would not, for that reason alone, make the individual certificate ineligible for the transition relief described in this memorandum provided that the certificate gives the individual the ability to enforce all his or her contract or account rights without any involvement by the employer.

Independent Audit
The Department will not reject a Form 5500 on the basis of a “qualified,” “adverse” or disclaimed opinion if the accountant expressly states that the sole reason for such an opinion was because such pre-2009 contracts were not covered by the audit or included in the plan’s financial statements. Except with respect to this relief, accountants engaged to perform audits of employee benefit plans must perform audit procedures and report in accordance with generally accepted auditing standards as required by ERISA and the Department’s implementing regulations.

Guiding Principle
The DOL reiterates that it understands that 403(b) plans subject to Title I of ERISA may encounter compliance issues unrelated to pre-2009 contracts in making the transition to the Form 5500 annual reporting and audit requirements generally applicable to Title I plans. Acknowledging that there may be instances when full annual reporting compliance by 403(b) plans may not be possible for the 2009 plan year, the guiding principle must be to ensure that appropriate efforts are made to act reasonably, prudently, and in the interest of the plan’s participants and beneficiaries.

Although ERISA’s annual reporting requirements may result in added costs to a plan, an administrator of a 403(b) plan administered in accordance with ERISA’s fiduciary and other applicable requirements should be able to prepare an acceptable 2009 Form 5500 or Form 5500-SF without undue expense or burden. The DOL states it has noted in other contexts relating to ERISA’s recordkeeping requirements that whether lost or destroyed records can, or should be, reconstructed and whether the persons responsible for retention of the plan’s records are, or should be, personally liable for the costs incurred in connection with the reconstruction of records or other consequences of their loss or destruction is necessarily dependent on the facts and circumstances of each case. In that regard, we expect that accountants engaged to conduct employee benefit plan audits will notify plan administrators of questions, issues, and irregularities discovered as part of the audit engagement that could materially affect the plan’s audit expenses or other costs associated with making the transition to ERISA’s generally applicable annual reporting regime. Providing administrators with that compliance assistance information will help them ensure that decisions regarding use of plan assets to defray annual reporting costs are reasonable, prudent, and in the interest of the plan’s participants and beneficiaries.

This guidance is welcome relief to industry practitioners who were concerned with what their responsibilities might have been with regard to old contracts over which they had no control and little or no data.  This will make everybody’s jobs easier.

The DOL has added that the relief applies not just to the 2009 plan year but also to future years.

Bill Grossman, ERPA, QPA