403(b) Plans – 2009 Frequently Asked Questions
Many tax-exempt organizations are either unaware or unclear about the 403(b) plan requirements for the 2009 plan year and have a lot of questions. Skoda Minotti has the skills and knowledge to provide high-quality services and meet the needs of the nation’s not-for-profit sector – including navigating 403(b) plans and the new regulations.
What are 403(b) Plans?
Internal Revenue Code Section (“IRC§”) 403(b) discusses the taxability of annuities and/or contracts purchased for employees of public schools, governmental agencies and organizations exempt from tax under IRC§ 501(c)(3). Currently designed to be similar to 401(k) plans, 403(b)s allow for employee salary deferrals and can also provide for employer matching and/or profit sharing contributions.
What are the IRS’s 2009 Changes for ALL 403(b) Plans?
In July of 2007, the Internal Revenue Service (“IRS”) issued final regulations that included comprehensive changes and guidance for 403(b) plans. The most important change is that all 403(b) plans must have a written plan document. The documentation requirement was effective January 1, 2009; however, while the plan must operate in accordance with its final document, the actual written document requirement was delayed by the IRS until December 31, 2009. When completed the plan document, which may be a collection of contracts and other documents, must contain all of the relevant plan provisions and detail who has administrative responsibility for the plan’s operations.
What changes did the DOL make for ALL ERISA-Covered 403(b) Plans?
The Department of Labor (“DOL”) issued its own regulations in November of 2007, which eliminated the ability of 403(b) plans subject to the Employee Retirement Income Security Act of 1974 (“ERISA”) to provide minimal information on the Form 5500 – Annual Return/Report of Employee Benefit Plan, beginning with the plan year beginning on or after January 1, 2009. Generally, a plan is subject to ERISA when the employer exercises control over and/or makes employer contributions to the 403(b) plan. Plans of public schools, governmental agencies and certain plans sponsored by a church are specifically exempt from ERISA’s requirements. As a result of this change, all ERISA-covered plans will need to collect and report, among other items, all financial data regarding all known plan participants and assets.
What are the DOL – 2009 Changes for ALL Large ERISA-Covered 403(b) Plans?
Under ERISA, large plans – those with 100 or more total participants (active, retired, terminated with vested benefits, etc.) at the beginning of the plan year must engage an independent qualified public accountant to audit the plan’s financial information.
Why did the IRS and DOL Make these Changes?
Based on their reviews of 403(b) plans, both the IRS and DOL have found numerous issues regarding how the plans have been operated. Both agencies want the employer offering the plan to take more responsibility and to have more accountability with regard to the plan. By requiring that the plans be formalized in written documents and collecting more data regarding the plans through annual reporting, their goal is to provide better oversight and protection for participants in these plans.
Why Skoda Minotti and the BDO Seidman Alliance?
Skoda Minotti and the BDO Seidman Alliance have the audit, tax and not-for-profit experience to assist 403(b) plan sponsors in meeting their compliance requirements. Bob Lavenberg, BDO’s National Employee Benefit Plan Audit Practice Leader, is chair of the American Institute of CPAs (“AICPA”) Joint 403(b) Plan AuditTask Force and works closely with AICPA and DOL staff – providing Skoda Minotti and BDO Seidman Alliance clients and staff with up-to-date guidance and assistance.
We can guide you through the entire benefit plan audit process. For more information, call Dani Gisondo at 440-449-6800.