Michael A. Webb,Vice President, Retirement Plan Services, Cammack LaRhette Consulting, answers:
First, just to clarify, the audit and related Form 5500 requirements only apply if your plan is subject to ERISA. Thus, churches and governmental plans (e.g. plans of public schools) are NOT be subject to the new Form 5500 and audit requirements, nor are 501(c)(3) elective deferral-only plans that are intended to be ERISA-exempt.
Assuming your plan IS subject to ERISA, the following individuals must be counted as “participants” at the start of a plan year in determining whether the plan is a large (100+ participant) plan subject to the audit requirements for that plan year:
- Current employees eligible to contribute to the 403(b) plan, whether they actually contribute to the plan or not (for most 403(b) plans, this includes ALL current employees); and
- Former employees and beneficiaries who maintain an account balance under the plan, UNLESS ALL of the following apply:
- Contributions to the former employee/beneficiary’s account ceased prior to January 1, 2009;
- The account is 100% vested; and
- The rights of the account are 100% enforceable by the employee without any involvement by the employer (this usually means that the account in question is funded by an INDIVIDUAL, as opposed to a GROUP, contract).
If there are more than 100 participants when taking the aforementioned rules into account, it is still possible that the audit requirement will not apply for the 2009 plan year if the plan does not exceed 100 participants by a large margin. If a plan was under 100 lives as of a prior year and grows to 100-120 lives at the beginning of the following year, an audit may be avoided if the plan filed a “small plan” filing for that prior plan year (this type of filing has no audit requirement).
As long as the counts for these plans remain at or below 120 participants in the future, an audit can be avoided. Of course, 403(b) plans were not subject to these rules for the 2008 filing since there was no audit requirement in that year under any circumstance. However they would remain exempt from the audit requirement in 2009, if the 403(b) plan could have filed as a “small plan” for 2008.
If there is any doubt as to which participants should be counted for purposes of determining whether your plan is a large plan subject to audit, benefits counsel and/or audit firms with specific expertise in this area should be consulted.
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.