The IRS recently issued final regulations that are significant for not-for-profit organizations with 403(b) retirement plans (also called “tax sheltered annuities”.)

Essentially, not-for-profits will have to comply with many of the same reporting and auditing requirements that apply to businesses that operate 401(k) plans.

Be prepared. The new regulations are generally effective for tax years beginning after December 31, 2008. Thus, it is likely that they will affect your not-or-profit for the first time this year. The new regulations indicate that the IRS has become more serious about the operation of 403(b) plans. These plans have previously flown under the radar for much of the time.

Under the final regulations, an employer with 100 or more participants must provide financial statements in conjunction with the revised Form 5500. It has been estimated that this change will affect about 7,000 not-for- profits with 403(b) plans. An employer with fewer than 100 plan participants may qualify for simplified reporting procedures.
Keeping that in mind, here are some of the main elements of the regulations:

Auditing rules: Organizations subject to the Employee Retirement Income Security Act of 1974 are generally required to have their financial statements audited if they have more than 100 eligible participants at the beginning of the plan year. This requirement typically extends to tax exempt charitable organizations other than churches or government entities.

The audited financial statements must be attached to Form 5500.

Participant records: In furtherance of generally accepted auditing standards, 403(b) plan sponsors must collect participant records showing
activities for the year. This is especially important if individuals have been assigned personal account numbers that are not linked by the sponsoring organization.

Plan administration: As a general rule, 403(b) plan sponsors have had minimal responsibilities in this area. Traditionally, the bulk of the responsibilities have been handled by a financial institution. Auditors will need to understand the controls in place, whether or not certain functions are being outsourced.

Financial statements: Under transitional rules, financial information for 2008 must be included in the audited financial statements for 2009. In the past, some not-for-profits sponsoring 403(b) plans did not receive a statement of net assets and activities at the plan level. Therefore, they should promptly contact the 403(b) plan investment custodian to ensure that these requirements are satisfied. Finally, your organization should be informed about any significant deficiencies in accounting procedures or internal controls that surface. A “significant deficiency” is defined as an item creating a risk of error in financial statements that may reasonably matter to a user of the financial
statements.

This is a complex set of regulations. It is strongly recommended that you seek professional assistance to ensure full compliance with the new rules.

by: Lflinn | www.articopia.com