403(b) Form 5500
Rev. 07/01/10; E-mail Alert 2010-10

In FAB 2010-01, the Department of Labor (DOL) provides additional guidance to 403(b) plans that will file a full Form 5500 for the first time for 2009. For example, the DOL affirms that the exemption provided by FAB 2009-2 will continue beyond 2009 (Q&A 11). If a contribution is made in 2009 for the 2008 plan year, (such as deferrals for the last payroll in 2008 that are deposited in the first week of 2009), the contract receiving such a contribution is still to be excluded from being reported as part of the plan on the Form 5500, provided it receives no further contributions (Q&A 13).

If the employer provides information sharing such as the contract owner’s employment status to a 403(b) provider that is not receiving contributions as of 2009 or earlier, the contract may still be excluded from Form 5500 reporting.

However, the exemption from Form 5500 reporting will not apply if the employer is involved with the contract in regard to the:

1. employer enforcement of the employee rights under the contract,
2. employer consenting to the distribution,
3. employer approving a hardship or loan,
4. employer certifying that the employee is eligible for the distribution,
5. employer is forwarding loan repayments to the contract provider.
   (Q&A 1 & 2)

Of the contracts that meet the exclusion in FAB 2009-2, the employer may select to include any contract(s) they wish. The contracts not selected to be included are still eligible to be excluded under FAB 2009-2. Q&A 4

FAB 2009-2 applies to both large and small plans. When determining if the plan is large or small, employees whose only assets are contracts excluded under FAB 2009-2 may be excluded from being counted, provided they are no longer eligible to defer. Q&A 5

403(b) contracts that meet the FAB 2009-2 exclusion rules are not to be treated as plan assets for purposes of ERISA’s annual reporting (Form 5500) nor for the audit requirements (ERISA Section 103(a)(3). The plan administrator may disregard these contracts and the DOL will not reject the Form 5500 on the basis of a “qualified, adverse or disclaimed” opinion if the IQPA expressly states that the sole reason for that opinion or disclaimer was because of pre-2009 contracts that were not covered by the audit. Q&A 6

Plan administrator responsible for determining if a contract is exempt from Form 5500 under FAB 2009-2. Nonetheless, if the Independent Qualified Public Accountant (IQPA), discovers that a contract was incorrectly excluded, they should alert the plan administrator. The plan administrator must take reasonable steps to resolve such questions. If the plan administrator and accountant do not agree on a resolution, the DOL expects the issue to be addressed in the audit report. Q&A 7

Contracts excludable under FAB 2009-2 may also be excluded from:

1. Schedule of Assets Held for Investment; (Form 5500, Schedule H, Line 4i)
2. Schedule of Reportable Transactions; (Form 5500, Schedule H, Line 4j)
3. Comparative financial reports in the 2009 Annual Report
   Q&A 8 & 9
   

In the case of a contract that met the rules to be excluded under FAB 2009-2, but where the employee requests an exchange of such contract with a new provider after January 1, 2009 and the employer’s authorization or approval is required, then the new contract is not eligible for reporting relief (and thus, must be included on Form 5500). Q&A 10

The relief in FAB 2009-2 is extended beyond the 2009 Form 5500 reporting year. Q&A 11

“Good faith” effort to determine if a contract meets FAB 2009-2 is defined under a facts-and-circumstances approach. Administrators who use FAB 2009-2 to exclude certain contracts should document their efforts. Good faith requires the administrator to implement internal controls and keep and maintain records going forward. Retention of six years is required of any documentation that supports the Form 5500 (ERISA Section 107). Retention of records to support benefits being provided should be kept for as long as necessary to support benefits provided (ERISA Section 209). The cost of reconstructing lost or destroyed records may be borne by the person responsible for retention of the records based on the facts and circumstances. Q&A 12

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