Nonprofit Organizations Need to Prepare Now for New 403 Plan Audit Requirements in 2009

Business Wire,  July 16, 2008  

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Amazingly, Many Not-for-Profit Organizations Do Not Have the Necessary Accounting Records and Controls to Audit Their Retirement Plans Next Year

NEW YORK -- Offering a 403(b) retirement plan to your employees is about to get a whole lot more challenging. The Department of Labor had exempted not-for-profit organizations from its reporting and audit requirements for employee benefit plans - until now. Beginning next year, not-for-profit organizations that offer employees ERISA-covered 403(b) plans will be required to file a Form 5500 annually with the Department of Labor, just as for-profit companies have done for 401(k) plans for years. Additionally, large 403(b) plans, which cover 100 or more participants, will have to include an audited financial statement with their Form 5500 filings.

However, this will be a daunting task for not-for-profit plan sponsors, which have never had to keep 403(b) plan financial records before. They didn't even need to have a written plan document.1 CFOs of not-for-profit entities simply signed up service providers, let employees open their accounts, and deducted and remitted contributions from employee paychecks. "Now not-for-profit plan sponsors will find themselves in a pickle because they won't have all the accounting records they need to receive an unqualified audit opinion," warns Barry Wechsler, CPA, a not-for-profit accounting expert and partner with Buchbinder Tunick & Co. LLP, which devotes more than half of its practice to employee benefit plans. He's advising clients to start preparing for next year's 403(b) audit right now.

One further complication: Although the amended regulations are not effective until plan year 2009, the Department of Labor requires auditors to measure 2009 figures against comparable information from the prior year. "Our audit staff will need to look at 2008 year end plan value, what the employer owes to the plan, accounts payable, and accrued expenses," notes Mr. Wechsler. "None of this information is at the plan sponsor's fingertips."

The amended regulations apply only to 403(b) plans subject to the Employee Retirement Income Security Act of 1974 (ERISA), which in general are plans sponsored by charities and schools. ERISA generally does not apply to 403(b) retirement plans offered by religious organizations and governments. Approximately 16,000 of existing 403(b) plans will be affected, including 7,000 plans large enough to require audited plan financial statements, according to the Department of Labor.

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About Buchbinder Tunick & Co.

More than half of Buchbinder Tunick & Company's practice is devoted to employee benefit plans. Our 401(k) and other employee benefit plan audit specialists perform dozens of plan audits each year, serving clients nationwide from our offices in New York and suburban Washington, DC. Our firm and its partners are members of the American Institute of Certified Public Accountants (AICPA), the AICPA Employee Benefit Plan Audit Quality Center, Enterprise Network Worldwide, the International Foundation of Employee Benefit Plans, The Profit Sharing/401(k) Council of America, the Association of Practicing CPAs, and multiple State Societies of CPAs. For more information, visit www.buchbinder.com.

1 But that's changing. The IRS is requiring them beginning Tax Year 2009.

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