Additional 403(b) Reporting and Audit Problems Outlined

July 26, 2011 ( - Even though Department of Labor FAB 2009-02 permits assets from a “deselected vendor” of a 403(b) plan to be ignored for Form 5500 financial statement purposes, the relief is insufficient in that it fails to recognize the inability of the employer to obtain verifiable opening balance information in plans funded with individual accounts.

This was the contention of Kristi Cook, JD, in testimony before the IRS Advisory Council on Employee Welfare and Pension Benefit Plans on behalf of the American Society of Pension Professionals and Actuaries (ASPPA) and the National Tax-Sheltered Accounts Association (NTSAA). Cook told the Council that Generally Accepted Accounting Principles (GAAP) do not permit the auditing community to utilize the relief as it was probably intended when issued by the DoL.   

The groups say that establishing an arbitrary date upon which an opening balance is accepted as provided, for all DoL reporting and disclosure purposes based on current individual contract balances for active employees/participants, would ease some of the auditing issues for the Forms 5500.  

Cook identified additional problems uncovered in the process of preparing for a Form 5500 filing and collecting the audit reports from the vendors under ERISA plans: 

  • Additional “vendors” are still being uncovered during the data collecting process. This not only complicates the data collection process but delays the audit for the Form 5500. One example of this occurrence is when the “vendor” is a broker-dealer and the underlying investment company is identified during the data collection process. This will continue to occur in light of the fee disclosure requirements. For the 2009 filings, this will mean amended returns in order to adjust the beginning balance. 
  • Vendors were not required to maintain data for over 40 years. They do not currently and have not in the past maintained the source data for the past 40 plus years. Vendors, recordkeepers, and third party administrators (“TPAs”) are continuing to build these files. They are getting closer, but unfortunately the industry is not there yet. As a result, the reports from the vendors continue to fail to reconcile, and the time frame to compose the revised data and prepare a new report is a minimum of 10 more days. 
  • It is difficult to reach an individual in a large company that truly understands the audit process and can provide the necessary information to the auditors. It appears that there is no allocation of sufficient resources within the vendors themselves. 
  • Large players in the 403(b) marketplace continue to stay in the market and offer products, although they have no current ability to track sources of funds and no ability to provide an audited program report. The TPA will receive from this vendor a series of Excel spreadsheets that do not balance and reports that contain errors. The TPA then must go back to the employer in an effort to balance the report, but find that the vendor’s records are not correct. The reports must then be redone.  


Cook said another issue is the unexpected discovery of other plans in the process of the audit as well as multiple administrators of these plans. Not understanding the “new” 403(b) world, employers do not understand that coordination there needs to be administrative coordination in most multiple plan scenarios. Additionally, employers have been provided with inconsistent information with respect to multiple 403(b) plans, creating ERISA and non-ERISA plans for different groups of employees; or attempting to create a non-ERISA plan alongside a qualified plan or even a SEP to accept the employer contributions. 

According to Cook, ASPPA and NTSAA continue to believe that there should be relief for the small 501(c)(3) organizations who cannot afford to maintain ERISA plans in this new world.  

They also recommend that the DoL expand the exemption from the independent audit requirement to make it more available to small employers. One easy way this could be done is to recognize the uniqueness of the 403(b) universal eligibility rule by re-defining a 403(b) plan’s “active participants” for purposes of the exemption from the independent audit requirement.   

The groups contend that if the DoL changed this definition for 403(b) plans to “eligible employees that make or receive a contribution during the plan year,” significantly more 403(b) plans would qualify for the small plan exception than under current rules.  

ASPPA and NTSAA also recommend that a committee of industry experts should be established to review and suggest modifications to the existing audit guidelines for 403(b) plans.