While the march to make 403(b) Plans look and act more like 401(k) Plans continues, the DOL issued guidance on the Form 5500 requirements to make this move easier. On January 1, 2009, new Final Treasury Regulations became effective which detailed multiple requirements imposed on 403(b) Plans. In concert with those Treasury Regulations, the Department of Labor indicated that the limited reporting exemption for 403(b) plans would disappear for the 2009 Plan Year - requiring, among other matters, 403(b) plans with more than 100 participants to file audited financial statements with their 2009 Form 5500.

Since, historically, there has been very little (if any) tracking of what investment vendors held a 403(b) plan’s contributions, there was a concern about how to complete the Form 5500 and perform an audit of the plan’s assets. The DOL issued a reprieve in Field Assistance Bulletin 2009-02 and stated that only contracts or accounts that are currently offered under the 403(b) plan are considered “plan assets” subject to the reporting and audit requirements. The DOL stated that a contract or account is not currently offered under a 403(b) plan - and is therefore exempt from the reporting and audit requirement - if:

  1. It was issued to a current or former employee before Jan. 1, 2009;
  2. The employer ceased to have any obligation to make (and in fact did not make) contributions to the contract or account before Jan. 1, 2009 (Note: This includes salary reduction contributions made at the election of an employee);
  3. All of the rights and benefits under the contract or account are legally enforceable against the insurer or custodian by the individual owner of the contract or account without employer involvement; and
  4. The account or contract is non-forfeitable/fully vested.

As a result of the Final Treasury Regulations, many employers reduced the number of their 403(b) investments vendors. Thus, those vendors who were removed as a current investment option before January 1, 2009 will likely satisfy the requirements of this exemption test - meaning these vendors will not need to be listed on Form 5500 and auditors will not need to take these investments into account in preparing their 403(b) audit. In addition, if an individual’s only investments are within these excepted accounts or contracts, the employer may not need to count that individual as a participant. This will have the affect of reducing the number of plan participants and, therefore, may enable an employer to file as a small plan instead of a large plan - keeping from the need to perform an audit.

More changes are coming for 403(b) plans - including a prototype plan program and a favorable determination letter program. Thus, this will be a changing area of benefits law which we - and all 403(b) plan sponsors - will be watching in the months and years to come.