IRS and DOL issue new rules affecting 403b plan holders
Plans now subject to same audit and reporting requirements as 401(k) plans
Do your employees participate in a 403(b) retirement plan? If so, you need to take action now to comply with new Internal Revenue Service (IRS) and U.S. Department of Labor (DOL) rules.
New rules affect schools, churches, hospitals, and other nonprofits
The new DOL rules apply to 403(b) plans that are subject to the Employee Retirement Income Security Act of 1974 (ERISA). If your plan is an ERISA plan, then starting with plan years beginning on or after January 1, 2009, you are required to file a more comprehensive Form 5500 with the DOL that includes detailed participant and financial information. Specifically, the Form 5500 must report all assets, liabilities, income and expenses of the plan. In addition, if your organization has at least 100 employees eligible to participate in the 403b plan, you are required to engage an independent qualified public accountant to audit the plan.
Some plans exempt from ERISA
Facts and circumstances determine whether a 403(b) plan is exempt from ERISA. Plans sponsored by governmental entities and churches are exempt from ERISA (unless the church made an irrevocable election to be subject to ERISA). In addition, salary deferral-only plans with no employer contributions and limited employer involvement may be exempt from ERISA. However, given the new IRS rules that require greater employer involvement, it is expected that many salary deferral-only plans will become subject to ERISA in 2009.
New requirements - take action now
The new IRS rules increase your responsibility for the plan’s operations and require the adoption of a new, written 403(b) plan document by December 31, 2009 (extended from the original deadline of January 1, 2009). The document must explain your plan’s features such as eligibility, contributions, distributions, and loans. In addition, you are responsible for identifying all vendors who provide investments under the plan and obtaining information from them to ensure the plan is being operated in compliance with the IRS rules. If you haven’t already created this plan document, you should do so as soon as possible.
You should also take the following actions now to ensure that your 403(b) plan will be in compliance with the new IRS and DOL rules:
- Create a plan document.
- Determine whether your 403(b) plan is subject to ERISA.
- Determine if the new Form 5500 and audit requirements affect your plan.
- Understand your plan’s provisions by reviewing plan documents and investment contracts.
- Identify all investment custodians who hold 403(b) plan money for your employees.
- Enter into an information sharing agreement with each service provider.
In addition to complying with the new IRS and DOL rules described above (and further detailed here), you must comply with existing IRS nondiscrimination rules if your 403(b) plan has employer-funded contributions. Although these rules have been in place since 1989, many 403(b) plan sponsors were unaware of these rules and have not been testing their plans. Now is a good time to review the nondiscrimination rules that may be applicable to your plan and to make sure you have processes in place to perform annual compliance testing under those rules.
We can help
The 403(b) plan rules are quite complex. We have specialists who can assist you with compliance with all aspects of these rules, including help prepare for the new audit requirement. Contact a LeMaster Daniels office in your area for more information.
Read more about changes to 403(b) plan rules.