- Department of Labor Issues Additional 403(B) Plan Guidance
- March 19, 2010 | Author: Kari Knight Stevens
- Law Firm: Blank Rome LLP - Philadelphia Office
On February 17, 2010, the Employee Benefits Security Administration (“EBSA”) of the Department of Labor issued Field Assistance Bulletin No. 2010-01 (“FAB 2010-01”) to clarify previously issued guidance relating to section 403(b) plans. The guidance addresses two areas of on going concern: (1) the application of the annual reporting requirements to section 403(b) plans and (2) the scope of the safe harbor regulations relating to section 403(b) plans.
Annual Reporting Requirements
Effective for plan years beginning on or after January 1, 2009, section 403(b) plans are no longer eligible for an exemption from full reporting requirements on Form 5500s. Previously, section 403(b) plans were only required to disclose limited information on the Form 5500 and were not subject to an annual audit.
In Field Assistance Bulletin No. 2009-02, EBSA provided limited relief from complete disclosure on the Form 5500 with respect to section 403(b) plan contracts or accounts that meet certain conditions. To the extent a contract or account meets all of these conditions, the assets are not included as part of the plan assets and the individual is not included in the participant count for purposes of determining whether an audit is required (i.e., for purposes of determining whether the plan covers more than 100 participants). The conditions for exclusion are:
- A contract or account is excludable from disclosure only if the employer is not required to take any action with respect to the contract or account after January 1, 2009, including such actions as approving distributions in advance, forwarding loan repayments or approving contract exchanges.
- Even if a contract or account is identifiable by the plan administrator, but otherwise meets the conditions set forth above, the contract or account may be excluded, but does not have to be excluded.
- If a contract oraccount is excluded, such contract or account does not have to be treated as a plan asset for purposes of inclusion in the plan or plan assets.
For those contracts and accounts that are not excludable, but for which the plan administrator does not have information, the plan administrator is required to make a good faith effort to collect information from the applicable service provider. “Good faith” will be determined based on the facts and circumstances.
Finally, the FAB clarifies that EBSA will not reject a Form 5500 with a “qualified,” “adverse” or “disclaimed” audit if the plan’s independent qualified public accountant specifically states that the sole reason for the qualification is the exclusion of the pre-2009 contracts and annuities.
Comment: The relief offered by the FAB may not eliminate all of the reasons for a “qualified,” “adverse,” or “disclaimed” opinion. Plan administrators should consult with the plan auditors to determine what additional information may be necessary to avoid additional reasons for the qualification of the opinion.
Scope of Safe Harbor Regulations
A section 403(b) plan is not subject to ERISA, notwithstanding the Internal Revenue Code requirement to maintain a written plan document and increased oversight, under long-standing ERISA regulations that exempt 403(b) plans from ERISA coverage if the employer does not take any discretionary action with respect to the plan.
The ERISA regulations require that employees have access to a wide range of investment providers and investments in order for the section 403(b) plan to be exempt from ERISA. The FAB clarifies that there may be circumstances under which it is appropriate for a small employer to limit the availability of investment providers. Such a section 403(b) plan may still be exempt from ERISA so long as the employee has the ability to exchange or transfer contracts or accounts to other service providers. In addition, the fees and expenses associated with such exchange or transfer must be disclosed to the participant in advance.
Comment: To the extent a small employer has already limited the available investment providers, the employer should determine whether additional disclosure of fees and expenses is necessary. The FAB does not specifically state who is responsible for the disclosure and so employers should be very careful when providing additional information to participants.