403(b) plans have been going through a metamorphosis over the last year or so. One of the most significant aspects of this change relates to the annual reporting requirements. The requirement that Non-ERISA 403(b) plans are not required to file a Form 5500 with the Department of Labor remains unchanged. However, ERISA covered 403(b) plans have enjoyed a limited filing exemption that disappears effective for plan years that begin after December 31, 2008. ERISA 403(b) plans will be required to file a full 5500 with attachments. “With attachments” includes the Schedule H if a plan is required to file as a large plan. Schedule H filers are generally required (there are few exceptions) to attach an audited financial statement.

The large plan determination can be confusing. A plan is considered a large plan if it has 100 or more participants on the first day of the plan year. The definition of a participant causes great confusion. A participant for these purposes is defined as an employee that met the Plan’s eligibility requirements or a terminated participant that maintains an account balance. Be aware that a participant is not only an employee that is actually contributing!

So once you have determined that you must file as a large plan, now what? Your first step it to find a qualified auditor. Often times corporate accountants lack the expertise required to conduct a benefit plan audit. Both the Department of Labor “DOL” and the America Institute of Certified Public Accountants “AICPA” have published literature on their websites regarding how to select a benefit plan auditor.

The DOL is very concerned about how 403(b) plans have been operated over the past many years. Your diligence in selecting a qualified auditor should be commensurate with this high level of concern. Put another way, “Hire someone that truly knows what they are doing!”

Your newly hired auditor will contact you shortly before the plan year ends or soon thereafter. For most, this will be the end of 2009 or the beginning of 2010. Even though this is more than a year away, there are things that you need to do now to prepare.

1. Determine if a limited or full scope audit will be required.
2. Get your plan document(s) in place.
3. Make sure personnel files are up-to-date and include all election forms.
4. Identify all loans and gather all loan documents
5. Determine how the Form 5500 will be prepared. This could be challenging if using multiple vendors because vendors do a poor job of integrating “outside” information into their system.
6. Determine opening balances for the year being audited. This is a critical step because the audited financial statement presents the information on a comparative basis. Beginning balances will be reflected on the statement and audit procedures will be performed on these amounts in order to obtain a level of comfort with their accuracy.

There is a lot involved with a benefit plan audit, especially for a plan that has never been previously audited. For employers whose staff has been through a plan audit, there will be some sense of what to expect, for others it may be a little overwhelming. The sooner you begin preparing the better off you will be!