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403(b) Five Things You Should Be Checking

403(b) retirementWith so many complex and ever-changing rules, nonprofits that provide a 403(b) plan for employees should regularly review their retirement plan compliance responsibilities, including these key areas:

  1. Employee contributions — These must be remitted by the earliest date that is reasonably possible to segregate the contributions from the employer’s general assets, but no later than the 15th business day of the following month. Compliance issues arise when plan administrators mistakenly treat the “15th business day” rule as a safe harbor and, in reality, contributions can reasonably be segregated in a shorter time period.
  2. Compensation — Eligible compensation should be thoroughly defined and cover the entire range of compensation — from W-2 wages and overtime to bonuses and fringe benefits. Problems can occur when a third-party administrator or payroll processor is not up to speed on the plan’s definition of compensation, or when the plan’s definition of compensation is amended but the third-party administrator or payroll processor is not notified.
  3. Eligibility — Plan sponsors are ultimately responsible for maintaining an accurate list of eligible participants. Be sure to document that employees have been notified of their eligibility to begin participating in the plan, as well as those who elect not to participate.
  4. Fees — Plan sponsors must also determine the reasonableness of all fees paid to outside service providers (like a third-party administrator or investment advisor). This entails bench-marking or otherwise comparing those fees against industry norms.
  5. Audit requirements – Effective in 2009, the Department of Labor eliminated an exemption that 403(b) plans previously had regarding Form 5500 reporting and the related audit requirements under the Employee Retirement Income Security Act of 1974 (ERISA). As a result, 403(b) plans are currently required to submit audited financial statements along with their Form 5500 if their plan is considered a “large plan” under ERISA. Generally, plans with 100 or more eligible participants at the beginning of the plan year are considered “large plans”. It is important that plan manage-ment monitor the number of participants who are eligible to contribute to the plan, rather than the number of participants actively contributing.

Remember that the ultimate responsibility for the plan’s operation rests with the plan sponsor, not the outside service providers you may hire to maintain your benefit plans. The IRS cuts nonprofits no slack for noncompliance — even unintentional errors.

For more information on this topic, please contact our office at 401-331-0500 and ask to speak to one of our Not-for-Profit specialists.

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