403(b) Retirement Plans: Expanded IRS Form 5500 Filing Requirements

As nonprofits with 403(b) retirement plans know, there have been changes recently from the IRS as well as the Department of Labor regarding retirement plans. Until recently, nonprofits with 403(b) plans were exempt from filing IRS Form 5500, “Annual Return/Report of Employee Benefit Plan,” and the accompanying audit. For plan years beginning on or after January 1, 2009, 403(b) retirement plans subject to ERISA lose their limited exception reporting and must file Form 5500.

The new requirements only affect 403(b) retirement plans that are subject to ERISA. If your organization’s 403(b) plan does not entail any portion of employer contributions and is not subject to ERISA, you are not required to file IRS Form 5500.

Nonprofits with 403(b) plans subject to ERISA will be required to file a short version of 5500-SF if they have fewer than 100 plan participants. Those with more than 100 participants will be required to file the long Form 5500, any appropriate schedules, and are also required to submit an auditor’s report conducted by an independent CPA.

If an organization has close to 100 plan participants, how you count the number of participants is a sticky issue, and there may be some flexibility in counting participants. For example, “participant” will not only refer to any current employees taking part in the plan, but also eligible employees not taking part, and former employees who still have funds in the plan. In some cases, only your broker will be able to determine the actual number of plan participants. For example, no one in your organization may know whether there are former employees who still have money in the retirement plan. There is still some confusion on this issue and further guidance is expected to be forthcoming.

Those nonprofits with more than 100 plan participants will be required to hire an independent auditor to certify the plan’s financial statements (Schedule H). While it’s not a requirement to hire an auditor other than the audit firm that currently conducts your organization’s audits, you should interview him/her just as you would any other auditor. Ask whether they currently conduct 5500 audits and ask for references. If your organization’s auditor doesn’t conduct 5500 audits, you need to find a firm that does. Be wary of auditors who claim that they must conduct a full audit of your organization’s finances. Be wary of auditors who try to inflate their billable hours. Informal conversations with auditors suggest that an audit of a 403(b) plan may range from $6,000-$20,000. A limited scope audit may satisfy the audit requirement if the plan is funded under a master trust arrangement or other similar vehicle.

The IRS will accept only electronic filings of Form 5500 for 2009 plan year filings; paper filings will not be allowed. Electronic signature credentials are required, and access to the Department of Labor website will begin on January 2, 2010 to obtain such credentials. It is recommended that groups not wait to secure the electronic signature credentials at the last minute. For plan years ending December 31, 2009, the 5500 filing is due by July 31, 2010, seven months after the end of the plan year.

If an organization has a plan provider, the broker cannot do the Form 5500 filing for the organization; however, they may be able to provide assistance.

For more information, go to the U.S. Department of Labor website for Employee Benefits Security Administration at www.dol.gov/ebsa.

This article originally appeared in the December 2009 issue of New York Nonprofits, the monthly publication of the Nonprofit Coordinating Committee of New York, Inc. www.npccny.org