New Auditing Requirements for 403(b) Plans

In early 2008 , the Department of Labor (DOL) released new reporting and compliance requirements for 403(b) plans. They now require many 403(b) plans to be audited that did not have to be audited in the past.
 
The new requirements apply to plans with fiscal years beginning on or after January 1, 2009. However, the revised requirements statethat the Statement of Net Assets be fully comparative, so it is in an organization's best interest to begin planning as early as possible in order to provide accurate information for Fiscal 2008.
 
Beginning on the January 1, 2009 implementation date, most organizations that are subject to the Employee Retirement Income Security Act (ERISA) and have 100 or more eligible participants will need to have their 403(b) plan's financial statements audited. These audited statements will need to be attached to the plan's Form 5500 upon submission.

The regulations for 403(b) plans were first laid down by the IRS in 1964, and there has been little guidance on them since that time. The new requirements represent the first time meaningful information regarding these plans will be reported.   

Preparing for Your 403(b) Plan Audit

Recent changes from the U.S. Department of Labor and the Internal Revenue Service require many 403(b) plans to be audited that were previously exempted. In general, plans that are subject to the Employee Retirement Income Security Act of 1974 (ERISA) and have 100 or more eligible participants will need to submit audited plan financial statements in order to be able to file a complete Form 5500.

The new regulations, according to the IRS, require plan sponsors to establish documentation standards, create requirements for working with investment providers, supply guidance on qualification standards, establish deferral deposit rules similar to a 401(k), clarify related employer rules, and supply termination privileges. All plans should have a written, Board-approved plan document in place by December 31, 2009.

The employee benefit plan audit process can be both helpful and seamless if you are properly prepared and know what to expect. We at Gelman, Rosenberg & Freedman are here to help you with your needs.

Questions your auditor may ask

General

• Have there been any changes to the plan, its investment policies, management, internal systems, or service providers? Amendments, mergers, partial terminations, preparations to terminate or alter the plan, sponsor’s financial condition, human resources, etc.
• Has the workforce changed significantly? Any participant complaints? Any delinquent contributions?
• Have there been any inquiries, regulatory reviews, enforcement matters, investigations or litigation (threatened or pending)?
• Have there been any activities or transactions that would affect tax-exempt status?
• Have there been any transactions with parties-in-interest?
• What functions do the third-party administrators handle?
• How is the participant experience? Can they perform transactions on the phone or online? What payroll system is used? Any problems with confirmation?
• Are there appropriate measures and guidance in place to prevent fraud? Any concerns or awareness about potential irregularities?

Plan Administration

• Identify personnel involved with preparation of the trial balance, Form 5500, plan financial statements, and journal entries. Identify who reviews the statements and disclosures. And, identify the person reconciling third-party records and reports.
• How is communication handled among those involved with administration of the plan?
• Does the plan sponsor have an internal audit function? Has it performed any procedures for the plan?
• How is fair value determined for unmarketable investments?

Other

• Any nondisclosure or business associate agreement issues the auditor should be aware of?
• What is your desired timeline for fieldwork and submission of the final reports? Any obstacles or difficulties that could impact meeting these deadlines?
• Do you have access to detailed contribution schedules?

Be sure to contact your auditor for a full list of materials that they will require in order to conduct the most efficient and accurate audit possible.