What Accounts Are Considered by the IRS and DOL To Be In A 403(b) Plan?
Rev. 09/13/11; E-mail Alert 2011-13

Since the 403(b) termination guidance creates a 403(b) contract that exists outside of an employer plan, the rules for what accounts are in the plan need to be revisited. The following is an article on what accounts are considered part of the employer's plan for IRS purposes and what are considered part of the plan for DOL Form 5500 filing purposes.

IRS Rules for Identifying Assets Required as Part of 403(b) Plan as of Jan. 1, 2009*

MHCO: What accounts will the IRS be looking for in plan audits with respect to assets that are required to be maintained within the 403(b) plan?

Note (MHCO): These are IRS Rules, which are not the same as the DOL's Form 5500 rules in FAB 2009-2.

ACCOUNTS INSIDE THE PLAN

• All accounts with current providers.
• Accounts of current employees with former providers deselected between 2005 and 2008.
  (Reasonable good-faith effort to contact the prior vendor(s) was required before exclusion.)
• Rev. Rul. 90-24 transfers that occurred between September 25, 2007 and December 31, 2008 are deemed part of the plan and must have been either re-exchanged by July 1, 2009, or with a current vendor or a vendor who has an Information Sharing Agreement with the plan.

* Rev. Proc. 2007-71, Section 8

ACCOUNTS OUTSIDE THE PLAN

• 90-24 transfers that occurred before September 25, 2007.
• Accounts with former provider(s) deselected prior to 2005.
• Accounts for former employees with former providers deselected from 2005 to 2008.

IRS Rules for Identifying Assets Required as Part of the 403(b) Plan as of February 22, 2009*
As part of a plan termination, the following are also outside the plan, but are still a 403(b) contract:

1. Termination “distributions” that include the "delivery" of a “fully paid individual insurance annuity contract.” The distributed annuity contract is deemed a 403(b) contract.
2. Certificates under a group annuity contract that are delivered to the participant are also deemed a distribution of a “fully paid individual insurance annuity contract.”

NOTE: Amounts from a distributed contract may still be rolled over and these amounts are not taxable until actually distributed.

* From Revenue Ruling 2011-7

What Accounts Are Considered to be in the Plan for DOL Form 5500 Purposes?

DOL Rules for What Accounts are in the Plan for Form 5500 — FAB 2009-2
According to the DOL, a 403(b) plan does not need to treat contracts as part of the employer's Title I plan or as plan assets for Form 5500 reporting purposes provided:

1. The contract or account was issued before January 1, 2009;
2. The employer ceased making contributions to the contract or account before January 1, 2009;
3. The contract rights and benefits are legally enforceable by the individual contract or account owner without further employer involvement*; AND
4.  Participant is fully vested in the contract or account.

If all the contracts or accounts of current or former employees are excluded from the plan’s Form 5500/SF reporting, such participants are not counted as participants for Form 5500 annual reporting purposes.

*An individual certificate under a group annuity contract held in an employer’s name is also eligible for this transition relief provided the certificate gives the individual the ability to enforce all of his or her contract or account rights without employer involvement.

FAB 2010-1 Clarifications of FAB 2009-2
The reporting exemption provided by FAB 2009-2 will continue beyond 2009.  A contribution made in 2009 for the 2008 plan year does not break the exemption, provided no further contributions are made. In addition, information sharing on a contract existing prior to 2009 does not break the exemption.

The exemption from reporting will not apply if an employer’s role with respect to a contract involves any of the following:

• Enforcing employee rights under a contract
• Consenting to distributions
• Approving hardship withdrawal or loan requests
• Certifying that an employee is eligible for a distribution
• Forwarding loan repayment to contract provider

An employer is not required to include pre-2009 contracts even if the employer is able to locate the contracts.  Contracts that meet the exemption criteria may also be reported.  If an excluded contract is exchanged with a new provider, and the exchange requires an employer’s authorization/approval, the new contract is no longer eligible to be excluded.

Thus, the orphan concept has the addition of the terminated plan "fully paid" annuity contract.

For more on this subject,
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