Employers should revisit their plans to determine whether they are subject to the new Form 5500 reporting requirements, which include new audit and reporting obligations.

On February 22, 2010, the U.S. Department of Labor (DOL) Employee Benefits Security Administration (EBSA) published a number of new compliance resources for sponsors of Internal Revenue Code Section 403(b) arrangements that are subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA). As reported in McDermott’s April 16, 2008, On the Subject, “IRS Proposes Prototype Program for 403(b) Plans,” sponsors of such arrangements must comply with certain annual filing requirements for plan years beginning on and after January 1, 2009 (i.e., reporting on Form 5500 in 2010). In particular, certain sponsors of such arrangements must conduct annual plan audits and include the results of such audits with their annual report, which must be electronically filed using the DOL’s E-fast 2 Filing System. The new EBSA guidance assists plan sponsors in meeting these obligations.

The EBSA materials include Field Assistance Bulletin (FAB) 2010-01, which updates FAB 2009-02. FAB 2009-02 provided relief to plan sponsors with respect to the inclusion of certain long-standing but inactive annuity contracts and custodial accounts in the sponsor’s annual audit and reporting materials.

FAB 2010-01 was released on the DOL’s web page. It includes 13 questions and answers regarding annual reporting requirements, and an additional five questions regarding coverage. The following are highlights of the various questions:

  • The relief provided under FAB 2009-02 applies to both large and small plans (those with fewer than 100 participants) and the relief extends indefinitely beyond the 2009 reporting year.
  • To exclude a contract or account under FAB 2009-02, no contributions can be made to the contract or account after December 31, 2008. However contributions made in 2009 that relate to the 2008 plan year are treated as having been made in 2008 for purposes of applying this rule.
  • Generally, as long as an annuity contract or custodial account satisfies the requirements of FAB 2009-02, it can be excluded from the plan’s annual report. The related employer’s sharing information with vendors, forwarding employee loan repayments resulting from salary reduction, or the sponsor’s general knowledge that the contract or custodial account exists does not change this.
  • Annuity contracts and custodial accounts that satisfy FAB 2009-02 are not treated as plan assets for ERISA’s annual reporting and audit requirements.
  • An organization’s decision to exclude some annuity contracts or custodial accounts by application of FAB 2009-02 does not mean that all contracts or accounts that could be excluded must be. Put another way, the employer can select from the various contracts and accounts that satisfy FAB 2009-02 those that it will and will not include in reporting.
  • Relief under FAB 2009-02 does not extend to annuity contracts and custodial accounts that are exchanged on and after January 1, 2009 (e.g., an account that would have satisfied FAB 2009-02, but which is exchanged after the applicable date). Independent qualified public accountants hired to audit a plan who discover that a reporting organization incorrectly applied FAB 2009-02 are expected to notify the organization of the error.

The guidance also emphasizes the importance of the providing employer not making any discretionary determinations or exercising discretionary authority under a plan that is intended to be exempt from the reporting requirements under Title I of ERISA. Examples of excess discretion would be making discretionary determinations regarding optional features under a plan or appointing a third-party administrator.

Given this guidance by EBSA, employers should revisit their plans to determine whether they are subject to the new Form 5500 reporting requirements, which include new audit and reporting obligations. If so, the employer should obtain guidance on satisfying the reporting obligations while taking advantage of relief contained in FAB 2009-02. This relief could ease the employer’s reporting obligations, particularly with respect to older and inactive annuity contracts and custodial accounts. Employers should also be wary of actions that could jeopardize the ability to obtain relief under FAB 2009-02, such as allowing employees to convert excluded annuity contracts and custodial accounts to active accounts after December 31, 2008.