A common misconception is that all 403(b) employee benefit plans are exempt from filing the Form 5500 and an annual plan audit. Over five years ago this was true, and these plans were exempt from the Employee Retirement Income Security Act of 1974 (ERISA). However, beginning in 2009, some 403(b) plans are now required to follow the same requirements as 401(k) plans by filing a 5500, and if necessary, engaging an independent qualified public accountant to audit its employee benefit plan. However, if you are an exempt organization under Internal Revenue Code (IRC) section 501(c)(3), better known as a charity, you may still be exempt from filing the Form 5500, if you meet various ERISA safe harbor exceptions.
Your entity’s plan is covered under the safe harbor exception if the participant accounts are held in an annuity contract or custodial account, funded solely by the contributions of the employees through salary reduction agreements, and is not “established or maintained” by the employer. Under these guidelines, the employer has little control or influence over the plan and employee participation is voluntary. In most cases, the extent of the activity is withholding the employees’ contributions and remitting them to the plan custodian. If your plan follows these requirements, it is most likely not subject to ERISA and therefore, does not need to file a Form 5500 or have an audit. Organizing your plans under this safe harbor exception can save your entity thousands each year in audit fees and Form 5500 filings.
On the other hand, if your entity’s 403(b) plan is not exempt from ERISA, it is vital to ensure your entity is filing the Form 5500 annually and abiding by audit regulations if required. It’s important to determine your employee benefit plan status to ensure your entity is in compliance and to avoid potential penalties and interest. In most cases, your third party administrator will properly oversee your plan and its requirements. However, it is beneficial as an entity to understand your plan.
By Samantha E. Mahlen, CPA