Exclusion of 1/1/09 Contracts

Is it too late to decide to exclude pre-1/1/09 contracts?  Taking over a new client approaching the audit and they have 10 or 15 pre 1/1/09 contracts.

I would just report them as a distribution I guess (if it is doable).

Good question. I'd start by asking the auditor. Regardless of what you think, if the auditor insists that they must continue to be reported, then that's your answer for this client.

My inclination is that you don't have to continue to report them, if they satisfy the requirements of FAB 2009-02, and 2010-01. But I have no idea what is the most reasonable approach from an asset accounting standpoint.

Personally, since the information on these contracts is obviously available, I'd probably continue to report them. But maybe not, if your approach turns out to be reasonable!

Well we're trying to avoid an audit in the first place.  Count is about 115 people, so not over the threshold yet. Let's see if anyone has ever done this!

Ah, I get it. I'd be ok with changing the participant count to remove them, (again, assuming meeting the FAB requirements) but like you, I'm just not sure about the asset accounting. Agree, see if anyone else knows!

Consider amending your returns rather than reporting this as a distribution.

 Belgarath correctly cites FAB's 2009-02 and 2010-01 as the background and recitation of the rules involved with this issue. There is no  expiration time clock.  Such contracts (or custodial accounts) have to have had no employer activity since before 01- 2009.  That means no loan payments, no contributions, no discretionary decisions of any kind made by the plan sponsor concerning these contracts.  Although not specifically required, most of such contract holders are usually terminees,  so I do not understand the conversation about reporting them as a distribution now.  That should have happened some time ago.   And if the Participant is still employed, I don't think you have a distributable event.

If these contracts (or custodial accounts) are excludable, the assets are also excludable (See Q.6 of 2010-01) I would not ask the auditor to tell you how to handle this.  At 115 total accounts, with 15 excludable contracts, the auditor may be out of a job if the employer elects to exclude these contracts.  This is a big price tag for your client and well worth working on.

We (QBI, LLC an Ascensus company) use this whenever it is appropriate.   The most common situation in which this applies in our book of business is old TIAA individual annuity contracts.  These contracts have Participant control without requiring the plan sponsor to make discretionary (or any) decisions. So as long as contributions, etc ceased prior to 01-01-2009, these contracts can usually be qualified for this exemption.

Not surprisingly my plan is a TIAA plan as well.  And of course the scenario is that in 2009 pre 1/1/09 contracts did not matter so there was no need to exclude them.  They have been reported as plan assets all along.  The question would be, how do I get those assets off of the 5500?  I suggested distributions, but if you have another idea I'd be all ears!  One suggestion was to amend all 10 of the prior 5500s, which admittedly would work, but would be quite a bit of extra billing and work!

Good question, austin3515!   I am not an administrator but we have lots of them.  I will ask one and get back to you.

Please, call me Austin ?

OK, Austin!  And you should call me "PNJ"!!   

Our  very best 403(b) administrator, who has several of these plans, just returned my call.  She said that they just dropped the Participant count and did not change the asset number.  She acknowledged that this is not quite what the FAB's say but told me that they have never had a problem with doing it this way.   They have not had an IRS/DOL audit on any of these plans but have not received any inquiries regarding the 5500's as filed.

Hope this helps!

PNJ

I like that solution! Thanks for looking into this!