403b Compliance

[Guest AdamR]

As somebody who works primarily with other types of qualified plans, I thank everybody for their messages on this board as I have been a regular visitor over the past few months because of a 403b prospect. I wanted to run a scenario by all of the other professionals on this board to hopefully get some feedback.

My prospect has a 403b which has been in place for some time. This plan is set up with a large mutual fund company and each employee has thier own custodial account. The plan offers an employer contribution of a flat % of salary once the employee is 21 years old and as long as they are expected to work 20 hours per week. The plan has no document, the employer contributions have never been tested (ACP), and the plan does not file a 5500 (They file a 5500 for their cafeteria plan).

Does the fact that they file a 5500 for the cafeteria plan with the "Pension Benefits" box checked mean they do not need to file one for the 403b? Should the Er contributions have been tested all along or is this not required as this is not a match? Since this is an ERISA plan, can the plan specifically exclude Ee's who work under 20 hours from receiving the Er contribution?

I am sure they need a document. What types of penalties are involved for not having one, or what types of penalties are involved for anything else they are doing wrong???

Any advice/suggestions are much appreciated. We do have a compliance officer on staff that I am going to consult with as well, but I am also looking for thoughts from other experts. Thank you.

[Below Ground]

Yes, they need a Plan document. No, you should not have a problem with ACP Testing since it sounds like you don't have a Match but a Nonelective that everyone gets same percent of Pay. Yes, you can have a 403(b) Document exclude less than "20 Hour People". Yes, a 5500 Filing is needed. Of course, it is most likely just page one so it should be easy. Hope this helps.

[Guest AdamR]

Could the fact that they file a 5500 for their cafeteria plan mean they do not need to file one for the 403b? What are the potential fines/penalties like if they choose not to do a document, and do not fix the 5500 issue voluntarily? Can they still be responsible for fines if they go through a voluntary correction program for the 5500's? We are probably talking about almost 20 years where nothing has been done. Thank you.

[Guest AdamR]

Could somebody comment on the possibility of the cafeteria plan 5500 satisfying the requirement for the 403b 500 filing requirement? They were told by the current provider that they do not need to file one, but I cant see this being true. Also, since this is an ERISA plan, would it be easiest to look for a custodian that holds plan assets in an omnibus account and recordkeeps participant balances seperately? I was thinking this would be easier in terms of being able to produce annual valuations moving forward, and providing a more streamlined investment lineup to adhere to an IPS. They can currently invest in any fund this particular family offers (hundreds).

[John Feldt ERPA CPC QPA]

Are they a government employer? If so, the 5500 should not be required for the 403(b).

Are they a church entity? If so, they have certainly not made a voluntary election under 410(d) to subject the plan to ERISA and then the 5500 should not be required for the 403(b). An election under 410(d) would be made as an attachment to the first 5500 filed (which you say they have filed) or alternatively, such an election could be made as a statement attached when the plan files for a D letter for the document (which you say they don't have). Be careful though, they might be church-controlled, which is different than being a church. A church (or a church school) would be considered a church and no 5500 is required. But, generally, any other church controlled entity would still have to file.

I am not involved in cafeteria plans.

Bummer about the plan document not being there.

[Guest AdamR]

Sorry for not bing clear, they are neither government or curch controlled. They are a community health center.

[John Feldt ERPA CPC QPA]

So they are the usual tax-exempt organization. Consider using the DFVC program. Here's a link for a start:

http://www.dol.gov/ebsa/newsroom/0302fact_sheet.html

You asked:

Q1. "Can they still be responsible for fines if they go through a voluntary correction program for the 5500's?"

A1. Not directly because of the DFVC filing, but perhaps indirectly: after filing DFVC the plan could be audited. Who knows what they might find then. Was the plan in compliance operationally all of those prior years? In addition, the document issue should be resolved as well. Perhaps at the same time the DVFC filing is sent, an EPCRS filing can be made to correct the plan document failure. Here's a link to some EPCRS information:

http://www.irs.gov/retirement/article/0,,id=96907,00.html

Q2. "They were told by the current provider that they do not need to file one." (a 5500)

A2. Consider asking that provider to issue a written statement confirming this, ask them to cite their reasons that they think the plan is exempt from filing. If you find that their reasons appear to be in error and this firm really still believes that they are correct, see if they would be willing to accept (in writing) all financial responsibilities for any potential costs to the plan or plan sponsor (including time and expense for corrections) if a failure to file issue ever arises where the government requires that they file.

Q3. "Would it be easiest to look for a custodian that holds plan assets in an omnibus account and recordkeeps participant balances seperately?"

A3. Probably a good idea. Make sure due diligence is done to avoid paying high fees for low service, etc.

[Guest AdamR]

Thank you for the insightful information.