To Audit or Not To Audit: Factors Determining the Need For a 403(b) Plan Audit
Whether or not your not-for-profit organization requires an audit of its 403(b) plan depends on a variety of factors. For plan years beginning on or after January 1, 2009, 403(b) plans that are subject to Title I of ERISA will be subject to expanded Form 5500 filing requirements and may be required to submit audited financial statements with its Form 5500.
As you are likely aware, the Form 5500 for year 2009 has been redesigned. Prior to 2009, employee benefit plans covered under Internal Revenue Code Sec. 403(b), had no filing requirement or a limited filing requirement depending upon whether the 403(b) plan is subject to Title I of the Employee Retirement Income Security Act of 1974 (ERISA).
Below are the steps to determine audited financial statements need to be attached to the 2009 Form 5500:
Step 1.Determine if the plan is subject to Title I of ERISA. Basically, if the plan receives employer matching contributions, allows participants to borrow from their account or take hardship withdrawals, then the plan is subject to Title I of ERISA. However, government plans and church plans are exempt from Title I of ERISA. If the plan is subject to Title I of ERISA, proceed to Step 2. If the plan is not subject to Title I of ERISA, then audited financial statements are not required.
Step 2.Did the plan have 100 or more participants on the first day of the plan year (1/1/09 for calendar year plans)? If YES, got to Step 3. If NO, go to Step 8. (Participants include all employees eligible to participate, whether or not they chose to participate, as well as participants who have separated from service and are currently receiving or are entitled to receive benefits in the future.)
Step 3.Did the plan have more than 120 participants on the first day of the plan year? If YES, then audited financial statements are required. If NO, go to Step 4.
Maintaining a 403(b) plan’s financial records can be a daunting task for any not-for-profit plan sponsor, but it is crucial to comply with the new reporting requirements in order to avoid penalities.
Step 4.Did the plan have less than 80 participants on the first day of the plan year? If YES, then go to step 8. If NO, then go to step 5.
Step 5.Did the plan have more than 100 participants on the first day of the previous plan year (January 1, 2008 for calendar year plans)? If YES, then audited financial statements are required. If NO, then go to step 6.
Step 6.Did the plan have more than 80 participants on the first day of the previous plan year (January 1, 2008, for calendar year plans)? If YES, go to step 7. If No, then go to step 8.
Step 7.Keep going back to the first day of each previous year until there were either less than 100 participants (go to step 8) or more than 120 participants (audited financial state are required).
Step 8.Have the required additional disclosures been included in the plan’s summary annual report and is the required financial information made available to the participants, free of charge? If YES, then audited financial statements are not required. If NO, then audited financial statements are required. The required additional disclosures include a notification to the participants that they (1) may obtain, free of charge, information relating to the plan’s assets which has been prepared by a regulated financial institution, and (2) they should contact the Employee Benefits Security Administration if they are unable to obtain this information.
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The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your plan’s individual facts and circumstances.
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