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403(b) Plans and Universal Eligibility

A few changes have been made to the 2014 IRS Form 5500 that may require 403(b) retirement plan sponsors to take action early and complete an audit for their retirement plan.

Do I need an audit of my 403(b) Retirement Plan?

If you have 100 or more employees, you may need a plan audit. One of the new questions on the Form 5500 relates to the total number of active participants at the beginning of the year. This question could affect 403(b) plan sponsors and require them to have an audit.

How do I determine if I need an audit?

The term “active participants”, according to the 2014 IRS Form 5500 Instructions, includes employees that are eligible to participate (even if they are not currently participating), terminated participants with an account balance and other account balance owners, such as beneficiaries.

In a 403(b) plan, there is a requirement to have the plan be universally available to all employees. This generally means that all employees are considered eligible for the plan. For some 403(b) plan sponsors, they could have more participants than they had originally thought. In other words, a plan audit could apply.

Answering these questions are not as clear-cut as they may seem. Proper consideration should be given to which employees are considered eligible for the plan, not only for these questions, but also for proper notice requirements to those eligible employees. More information on universal eligibility can be found on the NTSA Net website.

AN IMPORTANT NOTE: If you are required to complete an audit and you do not attach the plan audit to an IRS Form 5500, the form is technically incomplete and may subject the plan sponsor to penalties for late filing of the return.

Moral of the story, make sure to take a close look at your “active participants” and confirm you are filing your 2014 IRS Form 5500 accurately.

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