(b)lines Ask the Experts – Prepare for 2014 Form 5500 Change

January 13, 2015 (PLANSPONSOR (b)lines) – “I understand that the new 2014 5500 form/instructions have been issued. Are there any changes that would apply to 403(b) plans?”

Michael A. Webb, vice president, Cammack Retirement Group, answers:

A sample 5500 has indeed been published by the Department of Labor, but it should be noted that this version is for informational purposes only, and not to be used for actual filing. However the form, and the related instructions can be reviewed for changes from the 2013 version of the form.

Though most of the changes apply to defined benefit plans (see “DOL Puts Out Form 5500 Advance Copies”),  there is one significant change that is of particular importance to 403(b) plans. A new line 6(a)(1) has been added to the main form that requires plan sponsors to enter the total number of active participants at the beginning of the plan year. Previously, only the number of active participants at the end of the plan year was requested, along with the total number of participants (active and inactive) at the end of the plan year and the number of participants with account balances at the end of the plan year.

Why is such a seemingly mundane change an important issue for 403(b) plans? The failure to count the proper number of plan participants is one of the most common 5500 filing errors in 403(b) plans (see “(b)lines Ask the Experts – Avoiding From 5500 Errors”), and now there is an additional line on the 5500 where plan sponsors will need to be careful to make certain that the proper number of participants is reflected. The “active” participant question in particular can be quite tricky for 403(b) plans, since employees who otherwise make/receive no contributions to the 403(b) plan (elective deferral OR employer), may still be considered “active” participants, if they are ELIGIBLE to make elective deferrals to the 403(b) plan, but choose not to do so. And, in most 403(b) plans, few, if any, employees are excluded from the right to make elective deferrals, and thus must be counted as “active” participants.

Thank you for your timely question!


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.