There is not much time left for nonprofit organizations to plan for changes to reporting requirements of ERISA-covered 403(b) plans, according to Barry Wechsler, CPA, a not-for-profit accounting expert and partner with Buchbinder Tunick & Co. (www.buchbinder.com). Beginning with the 2009 plan year, 403(b) plans will be subject to many of the same financial reporting requirements as their for-profit cousins, 401(k) plans.
Beginning next year, not-for-profit organizations that offer employees ERISA-covered 403(b) plans will be required to file a Form 5500 annually with the U.S. Department of Labor (DOL). Large 403(b) plans, those which cover 100 or more participants, must also include an audited financial statement with the Form 5500.
Wechsler says nonprofits should begin preparing now for this potentially daunting task. "Not-for-profit plan sponsors will find themselves in a pickle because they won't have all the accounting records they need to receive an unqualified audit opinion," he warns. That's because, prior to the changes, 403(b) plan sponsors were not required to keep financial records. Instead, they simply signed up service providers, let employees open their accounts, and deducted and remitted contributions from employee paychecks.
How does this impact what non-profits are doing now? Although the amended regulations are not effective until plan year 2009, DOL requires auditors to measure 2009 figures against comparable information from the prior year. "Our audit staff will need to look at 2008 year end plan value, what the employer owes to the plan, accounts payable, and accrued expenses," Wechsler said. "None of this information is at the plan sponsor's fingertips."
Wechsler recommends that sponsors of ERISA-covered 403(b) plans take the following steps to encourage a smooth transition to the new rules:
1.) Find out whether you need to submit audited financial statements with your Form 5500. Filing requirements are determined by the number of plan participants. In general, 403(b) plans with 100 or more eligible participants will need to submit audited financial statements.
2.)Hire an experienced employee benefit plan auditor. DOL states that the primary reason audits are found to be deficient is that the auditor lacks experience, says Wechsler. Choose an auditor that performs employee benefit plan audits regularly.
3.)Identify all of your service providers and plan participants. Your plan may include service providers and former employees that are hardly active, but you are obligated to include them in your Form 5500. You may use the IRS' or Social Security Administration's Letter Forwarding Program to find them.
4.)Determine what 2008 comparative financial information you'll need for next year's audit. DOL requires that financial statements report prior year financial information, even for the year before the first report is required. Therefore, you will need to calculate certain information, including the current value of plan investments, the amounts of employer contributions owed to the plan, accounts payable, and accrued expenses as of the end of this plan year.
5.)Establish proper internal controls. As a plan sponsor, you have to implement practices, procedures, and policies designed to safeguard the assets of the plan from fraud or error and ensure accurate recordkeeping. A plan audit includes careful examination of your internal controls, so work with your auditor to establish proper controls this year.