403(b) Filing and Audit Requirements
Since 2009, 403(b) plans maintained by employers have been subject to the same filing and audit requirements as qualified retirement plans, such as 401(k) plans, under the Employee Retirement Income Security Act of 1974 (ERISA). Some types of 403(b) plans are exempt from ERISA, such as governmental plans (sponsored by a state, county or municipality) and church plans. Filings under ERISA include either Form 5500 or Form 5500-SF and, if required, an audit of plan by a CPA. The filing and audit requirements that are necessary for a 403(b) plan are based upon the number of the plan’s eligible participants. The general rule is that if a 403(b) plan has greater than 100 eligible participants as of the beginning of the plan year, the plan is required to file Schedule H of Form 5500 and conduct an annual audit of the plan’s financial statements. Eligible participants include (1) actively participating/contributing employees; (2) former participants who still have assets in the plan (retired, deceased or terminated employees); and (3) all employees who are eligible to participate but have yet to enroll or have elected not to enter the plan. Contact the 403(b) plan sponsor if you are unaware of the actual number of eligible participants.
403(b) Plan (less than 100 participants)
- Small Plan
- Form 5500-SF & Schedule I
- No Audit Requirement
403(b) Plan (100 participants or more)
- Large Plan
- Form 5500 & Schedule H
- Audit Requirement
There is an exception to the general rule noted above, which is called the 80/120 Participant Rule. The 80/120 Participant Rule gives plans with between 80 and 120 eligible participants as of the beginning of the plan year the option to file the Form 5500 under the same category as indicated on the prior year Form 5500 filing, whether that was as a small or large plan. For example, if a plan that had 105 participants at the beginning of the plan year and was considered a small plan for the previous year, the plan may complete the Form 5500 using the small-plan category again in the current year and each subsequent year until the number of participants exceeds 120. The 80/120 Participant Rule is to help those 403(b) plans that may occasionally go over or under 100 participants by not requiring them to file the Form 5500 using a large-plan category and necessitating an audit in a year in which they experience an unusually high number of eligible participants in the 403(b) plan.
Your not-for-profit organization should review its 403(b) plan and the number of participants annually to ensure that it is in compliance with the proper filing and auditing requirements. If you are unsure about your not-for-profit organization’s 403(b) filing and audit requirements, contact EisnerAmper and its Not-for-Profit Group or Employee Benefit Plan Group.