(b)lines Ask the Expert – Form 5500 for Frozen Plans

March 10, 2009 (PLANSPONSOR (b)lines) - Following the March 3 (b)lines article discussing new Form 5500 and audit requirements, a reader asked if those requirements also apply to a frozen 403(b) plan.

A plan provider asks: “A 403(b) plan sponsor froze its 403(b) plan several years ago such that no employee or employer contributions have been made since 2001.  Individual annuity contracts were issued from a multitude of vendors when the plan was active.  Since employer contributions were previously involved, the abbreviated Form 5500 has continued to be filed and the plan sponsor does have a plan document.  More than 100 employees have “frozen” contracts. Will this plan need to comply with the expanded Form 5500 requirements for a plan with greater than 100 participants, including the audit requirement.”

Yes, if these contracts are still part of the plan, the new Form 5500 and audit requirements may apply. The sponsor may want to evaluate the exact status of the 100 individual contracts to determine whether, in fact, all contracts have been effectively distributed already and thus, the plan effectively terminated many years ago.

Alternatively, the plan sponsor might consider the possibility of terminating the 403(b) plan now if there is no successor plan that would violate the successor plan rules in the provisions of the final 403(b) regulations permitting 403(b) plan termination.

However, the new Form 5500 requirements are effective for the 2009 plan year (unless the DOL grants some relief in the future), which may complicate the filing of the final 5500.

-David Levine, Groom Law Group, Chartered

NOTE: This feature is to provide general information only, does not constitute legal advice as part of an attorney-client relationship, and cannot be used or substituted for legal or tax advice.