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Guest Article
(From the March 15, 2010 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)
As § 403(b) plan administrators and plan auditors prepare to file the 2009 Form 5500 - which, for most plans, will be the initial annual report - the Department of Labor issued new guidance to clarify when certain annuity contracts and custodial accounts can be excluded. Elucidating on the carve-out provided under Field Assistance Bulletin 2009-02, the new guidance makes clear, among other things, that the relief applies to both large and small plans, and applies for 2009 and later reporting years.
Change in Reporting Obligation for § 403(b) Plans
IRC § 403(b) provides a tax-sheltered annuity program for public school employees, employees of certain tax exempt organizations, and certain ministers. Historically, these arrangements were treated as a collection of individual contracts or accounts controlled by the employee without the involvement of the plan administrator. However, this changed for tax years beginning in 2009, when § 403(b) plans - other than those qualifying as "governmental plans" or non-electing "church plans" - became subject to ERISA's general reporting requirements. As a result, plan administrators became obligated to report financial information regarding pre-2009 individual contracts and custodial accounts over which, in many cases, they had little knowledge. The new reporting also obligated § 403(b) plans with 100 or more participants to file audited financial statements, and obligated all § 403(b) plans to report the plan's aggregate financial information.
2009 FAB Provided Some Relief
Recognizing the difficulties administrators would face in complying with the new reporting requirements the Department of Labor issued Field Assistance Bulletin 2009-02. For purposes of satisfying the reporting requirements, this FAB allows administrators to exclude annuity contracts and custodial accounts as part of the plan or as plan assets if:
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Further Clarification
In response to questions it received regarding the scope of this relief, the Department issued Field Assistance Bulletin 2010-01. Among the main clarifications are:
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The FAB also addresses the regulatory "safe harbor" by which § 403(b) arrangements funded solely through salary reduction contributions are not considered employee pension plans - and, therefore, not subject to the reporting requirement. The safe harbor is set out in Labor Regulation § 2510.3-02(f). It requires (a) employee participation to be voluntary, (b) all rights under the contract to be enforceable only by the employee, (c) the employer to have only limited involvement, and (d) the employer to receive no compensation other than for expenses in handling salary reduction contributions. The FAB clarifies that the employer cannot, consistent with the safe harbor, appoint a third-party administrator to make discretionary decisions, and cannot itself retain discretionary authority to exchange or move funds from the § 403(b) provider. It can, however, select contracts where the provider is responsible for discretionary decisions. The arrangement generally must offer a choice of more than one § 403(b) contractor and more than one investment product.
The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations.
If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2010, Deloitte. |
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