Form 5500 Transitional Relief - New Guidance Issued
Employers sponsoring ERISA-covered 403(b) plans are subject to significantly expanded Form 5500 reporting beginning with the 2009 plan year, as well as a potential audit requirement. In recognition of the significant difficulties many employers face in collecting and reporting information regarding the annuity contracts and custodial accounts held under their 403(b) plan, the Department of Labor (DOL) issued
Field Assistance Bulletin (FAB) 2009-02 on July 20, 2009, which set forth transitional relief relating to certain pre-2009 contracts/accounts. On February 22, 2010, the DOL issued
FAB 2010-01 which addresses many questions raised by employers and practitioners with respect to the relief provided under FAB 2009-02. FAB 2010-01 also addresses a number of questions relating to the DOL's safe harbor which exempts 403(b) plans with limited employer involvement from ERISA.
By way of background, FAB 2009-02 stated that an annuity contract or custodial account was not required to be treated as a 403(b) plan asset if the contract/account satisfied each of the following:
- The contract/account was issued to a current or former employee before January 1, 2009;
- The employer had no obligation to make contributions (including salary deferrals), and in fact ceased making contributions, to the contract/account before January 1, 2009;
- All rights and benefits under the contract/account are legally enforceable against the vendor by the individual owner of the contract/account without employer involvement; and
- The individual owner of the contract/account is fully vested in his benefits.
Additionally, to the extent that a participant holds only a pre-2009 contract that qualifies for FAB 2009-02 relief and is not eligible to make salary deferrals to the 403(b) plan after January 1, 2009, the participant would not need to be counted as a "participant" for Form 5500 purposes. This can be important in qualifying as a "small employer" subject to simplified reporting requirements and exempt from the audit requirement.
FAB 2010-01 sets forth the following guidance regarding this earlier transition relief:
Ø An employer may provide information to a 403(b) provider without causing a pre-2009 contract to lose FAB 2009-02 relief. However, if employer consent or certification is required, or the employer makes other discretionary decisions relating to the 403(b) provider, then FAB 2009-02 relief is not available.
Ø FAB 2009-02 relief is not available where loan repayments made through salary reduction are remitted by the employer to the 403(b) provider.
Ø A plan administrator does not have to include contracts/accounts that qualify for FAB 2009-02 relief even if the administrator can identify the contracts, but it can choose to do so in whole or in part.
Ø It is the plan administrator's responsibility to determine whether a contract/account can be excluded under FAB 2009-02, but the auditor must alert the administrator if it disagrees with that conclusion and the parties must take reasonable steps to resolve the issue.
Ø If a contract/account that qualifies for FAB 2009-02 relief is exchanged for another contract/account with a new provider after January 1, 2009, the contract/account no longer qualifies for FAB 2009-02 relief.
Ø If the final contribution to the plan was made in 2009 but it was made for 2008, this alone will not result in loss of FAB 2009-02 relief.
Ø If the plan administrator cannot fully comply with the Form 5500 reporting requirements with respect to contracts/accounts that cannot be excluded under FAB 2009-02, the administrator must demonstrate a good faith effort to comply, which generally requires documentation of efforts to properly account and report contracts/accounts, implementation of internal controls to maintain records on a going forward basis, and appropriate documentation retention.
FAB 2010-01 also provides the following guidance regarding safe harbor 403(b) plans exempt from ERISA under DOL regulation 2510.3-2(f):
§ An employer may refuse to include contracts/accounts in its safe harbor 403(b) plan if the restrictions are intended to remove features that could involve the employer, such as hardships and loans.
§ If an employer hires a third party administrator to make discretionary decisions, this itself is a discretionary decision that takes the plan out of the safe harbor.
§ An employer may limit contracts/accounts to those offered by providers that agree to be responsible for discretionary decisions.
§
Generally, a safe harbor plan must offer a choice of more than one 403(b) provider and more than one investment option. An employer can offer only one 403(b) provider if employees can exchange their contract/account to another provider without employer authorization. If the employer can demonstrate significant cost and administrative burden in offering multiple 403(b) providers, the employer may be able to offer only one 403(b) provider if a wide variety of investment products are available.
For more information regarding FAB 2009-02 and FAB 2010-01, or your Form 5500 reporting requirements generally, contact Tara Schulstad Sciscoe,
Chris Sears or your Ice Miller LLP Employee Benefits attorney. | 
