403(b) 5500 and participant counts

[Belgarath]

Seems like it is 403(b) week here...

Just encountered something for the first time, and wondered if others see the same thing? An employer has 403(b) plan and all funds with TIAA. TIAA sends them a report each year giving the number of participants - i.e. the number of people with accounts with TIAA. Naturally, TIAA has no way of knowing how many other eligible people the employer might have, or for that matter, people with investments elsewhere.

Employer simply takes that number and transfers it onto the participant number line on the 5500. This means they are substantially understating the numbers, and in an ERISA plan, not getting an audit when required.

First, have you seen this occurring? Second, has anyone ever actually spoken with the DOL on this? I'm wondering if a client could maintain that "eligible but not deferring" in a 403(b) isn't required to be counted due to the following on the 5500 instructions - or at least use this to aid in negotiating if the DOL imposes penalties? Note that while they specifically list 401(k), they do NOT list 403(b):

1. Active participants (i.e., any individuals who are currently

in employment covered by the plan and who are earning or

retaining credited service under the plan). This includes any

individuals who are eligible to elect to have the employer make

payments under a Code section 401(k) qualified cash or

deferred arrangement. Active participants also include any

nonvested individuals who are earning or retaining credited

service under the plan. This does not include (a) nonvested

former employees who have incurred the break in service

period specified in the plan or (b) former employees who have

received a “cash-out” distribution or deemed distribution of

their entire nonforfeitable accrued benefit.

[John Feldt ERPA CPC QPA]

I'm wondering if a client could maintain that "eligible but not deferring" in a 403(b) isn't required to be counted due to the following on the 5500 instructions - or at least use this to aid in negotiating if the DOL imposes penalties?

No to the first part - the 5500 count is not determined by counting only those who defer and/or counting just those with accounts. I remember something about perhaps ASPPA having asked the DOL to consider changing the accountant's opinion requirement to be applied, at least for 403(b) plans, to only those plans with over 100 participant accounts? Maybe I was just dreaming that they asked the DOL about this?

Anyway, we have seen this exact problem and the solution presented was to go back and get audit reports for the Form 5500 and file under DFVCP. It's just not the kind of advice that wins over a prospect.