DOL Provides 403(b) Plans with Form 5500 Reporting Guidance and Transition Relief

As had been promised in recent public presentations, the U.S. Department of Labor (DOL) released Field Assistance Bulletin No. 2009-02 (FAB 2009-02) on July 20, 2009, providing much needed guidance and transition relief for sponsors of 403(b) plans who will be required to file a more detailed Form 5500 annual report commencing with their plan year that begins in 2009. Most important is the guidance provided relating to which participant accounts must be considered in determining whether the plan can avoid the requirement for audited financial statements.


A 403(b) plan is a retirement plan for certain tax exempt organizations under Internal Revenue Code section 501(c)(3), educational institutions, and States and their agencies or political subdivisions. In 2007, the Internal Revenue Service issued final regulations covering such plans. Separately, the DOL revised Form 5500 for the 2009 plan year expanding the annual reporting requirements applicable to 403(b) plans. Previously 403(b) plans were required to report only very limited information on Form 5500 and no financial statement audit was required for large plans. Under the DOL’s revised reporting rules, large plans (100 or more participants) must provide audited financial statements with their Form 5500 filing and small plans (less than 100 participants) are not required to have audited financial statements.

As a result of the revisions to the Form 5500 reporting requirements, the DOL received numerous comments regarding the difficulty of collecting the data necessary to meet the reporting requirements and suggestions for providing relief that would allow plan sponsors to meet the requirements in a reasonable manner considering both time and cost. The DOL had publicly noted that it generally will reject filings with disclaimer audit opinions, but has now recognized that issues specific to investment vehicles offered under 403(b) plans may present compliance issues for plan sponsors. It has, therefore, included transition relief for 403(b) plan sponsors.

FAB 2009-02 Transition Relief  

Under FAB 2009-02, 403(b) plan sponsors are required to make a good faith effort to transition their plans to ERISA’s generally applicable annual reporting requirements effective as of January 1, 2009. However, 403(b) plan sponsors may elect not to treat certain annuity contracts and custodial accounts as part of their plan or as plan assets for purposes of the Form 5500 annual reporting requirements, including the audit requirement, if the following conditions are met:

  1. The annuity contract or custodial account was issued to a current or former employee before January 1, 2009. 
  2. The employer ceased to have obligations to make contributions (including employee deferrals) and in fact stopped making contributions to the contract or account before January 1, 2009. 
  3. The employee can enforce all of his or her rights against the insurer or custodian without the involvement of the employer. 
  4. The employee is fully vested in the contract or account at all times.

Further, current or former employees holding only contracts or accounts that are excludable from the plan’s Form 5500 under the above transition relief do not need to be counted as participants covered under the plan for Form 5500 annual reporting purposes. The preceding provisions should reduce the total number of participants in a plan for purposes of determining whether the plan is a small plan or large plan, especially for plans that have a large number of former employees still holding accounts under the plan; thus, potentially relieving many plan sponsors of the requirement for audited financial statements.

The DOL also will not reject a Form 5500 on the basis of a “qualified,” “adverse,” or disclaimed opinion if the accountant expressly states that the sole reason for such an opinion was because such pre-2009 contracts were not covered by the audit or included in the plan’s financial statements.

The DOL acknowledged that there may be situations in which full annual reporting compliance by a 403(b) plan may not be possible for the 2009 plan year. However, the guiding principles of plan sponsors must be to ensure that appropriate efforts are made to act reasonably, prudently, and in the interest of the plan’s participants and beneficiaries. Unfortunately, the DOL did not indicate, other than referencing a 1983 Information Letter addressing record retention and reconstruction, the standard that would relieve plan sponsors of full annual reporting compliance or what types of full reporting failures may be excluded.

Plan Sponsor Action Required  

Plan sponsors should immediately begin the process of determining whether they are a small plan or a large plan for their 2009 plan year. As part of this process, the plan sponsor should identify all annuity contracts and custodial accounts to determine whether it can exclude certain annuity contracts and custodial accounts from its reporting and financial statement udit requirement, and whether the number of participants is reduced to a level that would allow the plan sponsor to avoid the requirement to have audited financial statements.

For more information, please contact Peter Alwardt, partner-in-charge of Eisner’s Employee Benefits Group, at 212.891.6022.


Any tax advice in this communication is not intended or written by Eisner LLP to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing, or recommending to another party any matters addressed herein. With this communication, Eisner LLP is not rendering any specific advice to the reader.

This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice, nor is it intended to convey a thorough treatment of the subject matter. 

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