The 403(b) plan compliance regulations for all plan years ending December 31, 2009, and after, have caused the 403(b) plan environment to overhaul itself.  Plan administrators are learning new duties, applying new regulations, complying with deadlines, re-examining single and multi-vendor relationships.

403(b) Plan Audit Requirement
Before 2009, 403(b) plans had reporting obligations that were summary in nature. Generally, 403(b) plans with 100 or more participants at the beginning of 2009 needed to attach audited financial statements to their 2009 Form 5500s.  Some 403(b) plan sponsors did not know that they had to have an audit.  Listed below are the most common audit issues encountered by 403(b) plan administrators and auditors in 2010 and what you should watch out for in 2011:

  • Inability to count proper number of participants. A plan sponsor must count employees who are eligible to contribute into its 403(b) plan, but do not contribute, as “participants” for purposes of Form 5500 (and thus the audit requirement). DOL Regulation § 2510.3-3(d) more specifically defines how to perform the count.
  •  Poor quality of supporting documentation from 403(b) plan sponsor.
  • Auditors are finding the quality of personnel file data to be poor or nonexistent. For example, when auditors try to verify whether the employer was honoring a five percent deferral election, there was no documentation to support the withholding and transmittal of the deferral.
  • Because of the lack of records, some plan sponsors had difficulty determining the location of all of its plan assets, contract balances, and number of former and current employees.
  • Filing Form 5500 without audited financials. Rather than not file the Form 5500, some 403(b) plan sponsors simply filed tax returns without the audit attached. Some plan sponsors did not know an audit was needed. Even if they knew, many did not retain an auditor in time, or the auditor could not complete its work before the filing deadline.
  • About five months after the due date of the Form 5500, the plan sponsor should expect to receive a notice from the DOL asking the plan sponsor to supplement its Form 5500. The DOL is treating the plan sponsor’s incomplete return as a return that is not a return at all (and thus not timely filed). The exposure to the plan sponsor here is a penalty for failure to file.
  • However, if the plan sponsor can then provide the appropriate financials soon after receipt of the letter, then the DOL will probably waive any late filing penalty.
  • 403(b) plan sponsors who thus did not have their audits finished before the Form 5500 filing should hire an auditor (if this has not already been done) and direct that the audits be performed and finalized. They can then either amend the already filed return or await the notice from the DOL.

Contact MCB’s Employee Benefit Plan Audit Practice Leader, Charles Deppe at 703-218-3600 or email  with your 403(b) audit and compliance questions or to receive a proposal for your next 401(k) or 403(b) plan audit. 

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