Don’t Delay in Preparing for Your 403(b) Plan Audit

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Beginning this year, not-for-profit organizations that offer employees ERISA 403(b) plans will be required to file a Form 5500 annually with the Department of Labor, just as for-profit companies have done for 401(k) plans for years. Additionally, large 403(b) plans, which cover 1 00 or more participants, will have to include an audited financial statement with their Form 5500 filings.

As a not-for-profit plan sponsor, you may find yourself scrambling to meet the DOL requirements if you do not have all accounting records needed to receive an unqualified audit opinion. The Department of Labor requires auditors to measure 2009 figures against comparable information from the prior year. This can be a daunting task for not-for-profit plan sponsors, which have never had to keep 403(b) plan financial records before, or even have a written plan document in place.

Although the first audit is not required until the 2009 plan year, the Form 5500 requires the Statement of Net Assets be fully comparative. Therefore, the 2008 financial information will need to be included in the plan’s 2009 audited financial statements. Since many 403(b) plans are often treated more like individual account arrangements than a formal plan, many sponsors may not have received a net assets and activity statement at the plan level. Plan sponsors should contact their 403(b) investment custodian to ensure that an investment statement will be available at the plan level for 2008 and subsequent years.

In addition to plan level information, auditors must perform procedures at the participant level. Plan sponsors should contact their record keeper to ensure records by participant with plan totals showing the activity for the are year available. This could be a considerable request, particularly if each individual at the sponsoring organization is given his/her own account number and they are not linked together by sponsoring organization.

What can I expect from the audit?
Although approaches to review your plan may vary between audit firms, most will include a combination of analytical procedures and testing of participant transactions. In their evaluation, the auditors typically seek assurance that a plan generally operated in accordance with its terms, that participants were properly included or excluded, that distributions occurred for valid reasons and for the proper amount, and all assets were captured.

Auditing standards require auditors to formally communicate matters they observe about their clients’ accounting procedures and internal controls. Auditors must inform clients about any “significant deficiencies” in accounting procedures or internal controls that come to their attention. Significant deficiency is defined as any flaw creating more than a remote risk of errors in financial statements that could reasonably matter to a user of the statements. Auditors must communicate these matters in writing to all individuals involved in overseeing strategic direction and accountability for operations, in addition to management.

What can I do to prepare for the audit?
You should start thinking about establishing internal policies, accounting procedures and controls for administering your plan, and verifying that the written plan document requirements have been met. This would help make the audit more efficient.

While there is a lot to consider with the new 403(b) audit requirements, the WISS Employee Benefit Plan team is ready to assist with your first audit.

For additional information, contact Paul Peterson, Partner-in-Charge, Employee Benefit Plan Services a ppeterson@wiss.com.

Which types of plans need to file form 5500?
Not-for-Profit organizations that offer employers ERISA-covered 403(b) Plans will need to file form 5500, with the exception of:

• Governmental plans
• A church plan not electing coverage under Internal Revenue Code section 410(d)
• A tax annuity (TDA) plan exempt from ERISA under DOL regulation 25 1 0,3-2(f) because:
• Participation is completely voluntary;
• Employer involvement is limited to administering salary reduction agreements;
• Investment options are limited to a number and selection designed to afford employees a reasonable choice;
• The annuity companies are permitted to publicize their products to employees;
• All rights under the contracts and custodial accounts are enforceable only by the
• participant; and
• The employer receives no direct or indirect consideration or compensation other
• than reasonable compensation to cover the expenses of administering the salary
• reduction agreements.

You should confer with your tax or legal advisor to determine if any of these exclusions apply to your plan.