Not-for-profit organizations should
prepare for some significant adjustments now that laws governing the
reporting requirements for 403(b) plans
have changed. A 403(b) plan for a not-for-profit is the equivalent of a 401(k) plan at
a commercial business. Beginning with
the 2009 tax year, all not-for-profits
(except churches and governments) will
be required to complete IRS Form 5500,
Annual Return/Report of Employee
Benefit Plan, if the plan is covered under
the Employee Retirement Income
Security Act of 1974 (ERISA). And, if
there are more than 100 eligible participants in the plan, there is an audit requirement as well.
“These plans have never had to be audited before,” says Laura Roos, a partner at
Moss Adams LLP, a San Diego CPA firm
that specializes in not-for-profit auditing
and accounting. “They’ve been under the
radar. If you haven’t been monitored
before, you don’t know what to keep and
not keep. Prepare for the worst.”
Smart Business spoke with Roos about
some of the steps not-for-profit organizations should begin taking now to meet the
new filing requirements.
Why were the changes instituted and what
will they mean to not-for-profits?
The Department of Labor and the IRS
have done inspections of plans to determine how 403(b) plans have been operated
and managed and governed. The exception
rate — or problems — was too high, so
they changed the rules. Before, with 403(b)
plans, nonprofits would file a one-page
document that just said, ‘We have a plan.’ It
was insignificant. The form had no numbers; there were a few boxes to be checked
and then a signature. But now, they’re
going to have to complete the whole Form
5500 and related schedules. Their accountability has gone up tremendously.
What can not-for-profits do to avoid being
overwhelmed by filing requirements at the
end of the tax year?
Get started now. People may have heard
about it, but I’m not sure if they have a
real understanding of how big a task it is
to gather the data that will be needed.
There’s going to be a lot of information
they need to get through.
They need to do a little bit of legwork to
understand where they are, and definitely
hire someone who understands the
arena. They can evaluate their service
providers (record keepers and investment custodians).
If you think about an organization that’s
been around for 10 years, they could have
10 years’ worth of plan information, and it
is likely that it has received little to no
scrutiny. Now, granted, it’s only the 2009
records that need to be audited, but if
you’ve gone along without balancing your
checkbook for 12 months, it’s painful. In
addition, you will need a good starting
point, so putting together good information for the end of 2008 is also important.
You will likely need to get into storage to
pull together the support for the 2008
What can organizations do to lessen that
The first step is to determine your plan’s
Form 5500 reporting and audit requirements and establish responsibility for the
plan’s financial reporting. Next, start communicating with service providers —
determine all of them and whether they
can provide the information you will need
to prepare for the audit. The service
providers in this arena have not had to
provide the typical information you would
expect for a 401(k) plan, so it is expected
that they may have difficulties providing
If you need to make a request from service providers now to get a report in nine
months, then lay that out now.
In addition you need to ensure your participant records are complete and accurate. It is possible that plan participants
may include former employees for which
the plan has no current record. You may
need to take steps to find these missing
What else does a not-for-profit need to do to
Develop books and records. This can be
a tedious process. If you are using multiple service providers, the information will
need to be obtained and summarized. You
need to have a set of financial statements
just like you would for an audit of the
organization and put together supporting
You must develop and document internal controls over the reporting process,
which is a requirement for any audit.
You need to have a written plan document. Your plan document should be
reviewed by an ERISA attorney to determine if it is in compliance with current
laws and regulations.
It’s a good best practice to have a written
investment policy to describe the types of
investments the plan can make and to
establish authorizations for investment
LAURA ROOS is a partner at Moss Adams LLP. Reach her at (858) 627-1400 or www.mossadams.com.