ADVISOR] NOT-FOR-PROFIT. 403 (b) Plan Reminders INSIDE. Published for Administrators and Board Members of Nonprofit Organizations 2009 ISSUE THREE

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1 2009 ISSUE THREE ADVISOR] Published for Administrators and Board Members of Nonprofit Organizations [ NOT-FOR-PROFIT 403 (b) Plan Reminders With the effec ve date of the final regula ons under IRC Sec on 403(b) behind us, plan sponsors should be well under way with ensuring their 403(b) arrangements are in compliance with the new rules. Although plan sponsors were required to sa sfy the final 403(b) regula ons in opera on as of January 1, 2009, the requirement to have a formal wri en plan document in place was deferred un l December 31, Addi onally, many 403(b) plans sponsored by non-profit en es will be required to file a more comprehensive Form 5500, Annual Return/Report of Employee Benefit Plan, beginning with the 2009 plan year. Furthermore, for many large 403(b) plans (generally those with greater than 100 par cipants) sponsored by non-profit en es, there will also be a requirement to have an annual plan audit performed. Considera ons Rela ng to Final IRS Regula ons Many non-profit sponsors of 403(b) plans are s ll ironing out processes and procedures that will be used to administer their plans on a go-forward basis. It is important for plan sponsors to determine how they want their plans to operate long term, in order to implement and maintain a plan document which reflects the plan s provisions, as well as administra ve processes. INSIDE PAGE 4 IRS GUIDANCE ON DETERMINING PUBLIC CHARITY STATUS PAGE 4 CHOOSING YOUR 403(B) PLAN YEAR END PAGE 5 403(B) PLANS DOL PROVIDES LIMITED TRANSITION RELIEF PAGE 6 IRS SEEKING COMMENTS ON TAXATION OF EMPLOYER-PROVIDED CELL PHONES PAGE 6 IRS POSTS NEW FORM 990 GUIDANCE ON WEBSITE PAGE 7 MEET OUR CONTRIBUTING AUTHORS (Continued on next page) To experience the Plante & Moran difference, visit plantemoran.com.

2 [ Plante & Moran NOT-FOR-PROFIT ADVISOR ] 403(b) Plan Reminders (Continued from cover) Plan Documenta on Whether a plan sponsor uses a third-party administrator to assist with administra on of their 403(b) plan or self administer their plan and use only an investment vendor, either outside party may have a plan document template for sponsors to adopt. Either approach is likely viable; however, our independent review of several plan document templates would indicate that modifica ons may be necessary for a template plan document to meet a sponsor s needs. Plan sponsors should ensure that provisions specific to their plan, such as the allowance for Roth 403(b) contribu ons, employer board paid annuity contribu on provisions, and plan loan provisions, are included within the plan documenta on, and required coordina on with the TPA or vendor is accomplished. Plan sponsors who have not yet begun the process of implemen ng a wri en plan document will need to act quickly, in order to meet the December 31, 2009, deadline. Plan Administra on in a Mul -Vendor Plan Non-profit sponsors who u lize mul ple investment vendors and who have decided to self administer their mul vendor 403(b) plan will need to ensure that a plan document is implemented that appropriately reflects the mul vendor approach, and any administra ve variances among each of the vendors. An understanding must be gained with respect to the plan features that each vendor will support, and the responsibili es that each vendor will assume. Plan sponsors may need to be more accommodating and assume certain administra ve du es for vendors who will not agree to perform/provide those func ons, or consider elimina on of such vendors as ongoing providers. To appropriately document the intended plan func onality and mul vendor approach, an individually dra ed plan document may be necessary. The degree of flexibility that a TPA or plan sponsor is willing to offer may ul mately dictate whether a vendor will con nue to receive ongoing contribu ons or par cipate in plan features such as loans or hardships distribu ons. For instance, a sponsor may an cipate delega ng certain administra ve tasks to their vendors, such as hardship distribu on processing, but some vendors may not agree to make hardship determina ons or even allow hardship distribu ons. Because of this, there may be some coordina- on efforts among vendors who will con nue as ongoing vendors within a given sponsor s 403(b) plan. Non-profit sponsors who are s ll in the planning process should have these considera ons in mind while preparing for the December 31, 2009, due date with respect to their plan documenta on and administra ve procedures. Comprehensive Form 550 and Plan Audit Requirements Now Apply to 403(b) Plans Prior to 2009, all 403(b) plans were exempted from the more comprehensive Form 5500 repor ng requirements that are applicable to many employer-sponsored re rement plans. Instead, a limited filing requirement existed, but only for those 403(b) plans subject to the Employer Re rement Income Security Act of 1974 ( ERISA ). Addi onally, all 403(b) arrangements were exempted from the requirement to engage an independent qualified public account to perform an annual audit of the plan, which applies to many large employer-sponsored re rement plans. However, for plan years that begin on or a er January 1, 2009, both of these exemp ons were eliminated. Hence, non-profit 403(b) plan sponsors, whose plans are subject to ERISA, will be required to ensure that the comprehensive Form 5500 requirement, and possibly the annual plan audit requirement, is sa sfied on behalf of their plans. ERISA Determina on Plan sponsors of 403(b) plans by now should have evaluated whether their plan(s) is subject to ERISA for the 2009 plan year, however, not all sponsors have made a formal determina on. The key in determining whether a plan sponsored by a non-profit en ty is subject to ERISA and, as such, is subject to the Form 5500 and audit requirements, is determining whether the plan is established or maintained by the employer. Employer-sponsored plans are determined to be a pension plan under ERISA, subjec ng the plan to these repor ng and disclosure requirements. ERISA regula ons provide an exemp on for 403(b) plans that meet certain criteria which deem them to not be employer-sponsored. This exemp on will con nue to apply a er January 1, Therefore, plan sponsors may s ll be able to avoid the new Form 5500 and audit requirements, if they determine their 403(b) plans meet the exemp on. The criteria to meet the ERISA exemp on generally include the following: Par cipa on is completely voluntary for employees. All rights under the 403(b) annuity contracts or custodial agreements are enforceable solely by the employees, their beneficiaries, or other authorized representa ves. The involvement of the employer is limited to: permi ng annuity contractors to publicize their products; 2

3 [ Issue Three 2009 ] reques ng informa on concerning funding media, products, or contractors; compiling informa on with respect to funding media, products, or contractors; collec ng contribu on amounts indicated by salary reduc on agreements, forwarding those amounts to providers, and maintaining records of those contribu ons; holding, in the employer s name, one or more group annuity contracts covering employees; or limi ng investment products/contractors to a number/selec on which is designed to afford employees a reasonable choice in light of all relevant circumstances. The employer receives no direct or indirect compensa- on/considera on other than reasonable compensa on to cover expenses properly and actually incurred by the sponsor in the performance of the sponsor s du es pursuant to salary reduc on agreements Form 5500 and Plan Audit Planning For 403(b) plans subject to ERISA, the Form 5500 and audit requirements will likely require the non-profit employer sponsoring the plans to begin planning for the 2009 requirements now. The data gathering to sa sfy these new requirements can be cumbersome and me consuming in some cases, so it is important that plan sponsors devote me to determine the implica ons on their plan(s) if not previously completed. The Form 5500 will require beginning of year par cipant accounts and financial informa on to be reported. Addi onally, for large plans requiring an audit, compara ve financial informa on will be required, which will force the auditor to include 2008 financial informa on within the audited financial statements for Most non-profit plan sponsors have not received consolidated statements of assets and other financial ac vity at the plan level in prior years and, therefore, gathering this consolidated financial informa on may be difficult. Plan sponsors should contact each 403(b) investment custodian in order to ensure that consolidated investment repor ng will be available for 2008 and subsequent plan years. Addi onally, plan sponsors will need to be able to demonstrate that appropriate accoun ng and control procedures are in place, which allow for appropriate administra on of the plan, as those processes will be reviewed during the plan audit process. Plante & Moran s employee benefits consul ng team has developed a compliance package designed to help plan administrators navigate the various new requirements applicable to 403(b) plans. The package will assist plan sponsors in determining which requirements apply to their plans, and outline steps necessary to ensure sa sfac on of those requirements. To obtain a copy of this compliance package, or to discuss the informa on contained in this transmi al, please contact Aaron Prince at or Bruce Delbecq at Plante & Moran s Not-for-Profit Advisor Goes Electronic Beginning in the fall of 2009, Plante & Moran s Not-for-Profit Advisor, a quarterly newsle er providing informa on on issues and trends facing not-for-profit organiza ons, will be offered in an electronic format. In addi on to being more eco-friendly, the e-newsle er will provide: The same high quality and informa ve content provided in the print version The ability to search, save, and print Direct web links to relevant informa on Many other added benefits To start receiving your Not-for-Profit Advisor as an e-newsle er, sign up at: nfpadvisor.plantemoran.com or contact Gina Mancinelli at

4 [ Plante & Moran NOT-FOR-PROFIT ADVISOR ] IRS Guidance on Determining Public Charity Status In Revenue Procedure , the IRS recently provided guidance specifically sta ng that grantmaking organiza ons may rely on third par es, such as Guidestar, as a first step in the process of determining a grantee s public charity status. Private founda ons have long been required to determine the public charity status of their grantees in order to determine if payments can be treated as qualifying distribu ons, and if expenditure responsibility must be exercised over the grants. Since enactment of the Pension Protec on Act of 2006, private founda ons as well as sponsoring organiza ons that maintain donor-advised funds must meet specific requirements regarding payment of grants to certain types of suppor ng organiza ons. Guidance provided in No ce required grantmakers to rely on either the grantee s IRS determina on le er, or the IRS Business Master File, which is accessible on the IRS website but is not forma ed in a user-friendly manner. Subsequent to the publica on of No ce , the IRS had posted a document on its website clarifying that, in lieu of downloading BMF content directly from the IRS website, a grantor may use a third party to obtain this informa on, as long as certain requirements are met. Although there were ques ons as to the authorita ve nature of this posting, many organiza ons had come to rely on sources such as Guidestar s Charity Check service, which provide the necessary informa on in a user-friendly format to make determina ons regarding grantees status. The revenue procedure formalizes the earlier advice posted on the IRS website, and makes this guidance authorita ve. The revenue procedure does not change the other por ons of No ce that deal with determining whether a grantee suppor ng organiza on is a Type I, II, or func onally integrated Type III suppor ng organiza on. Addi onal steps con nue to be required to ascertain this informa on. Choosing Your 403(b) Plan Year End Organiza ons have an opportunity to consider their plan s year end when finalizing their 403(b) plan documents in an cipa on of the December 31, 2009, deadline. While most plan documents default to a calendar year end, organiza ons should consider whether they would be be er served by making the year end of the plan the same as that of the organiza on s fiscal year end. Considera ons in making this determina on include: Audit prepara on and staff workload. Since benefit plan audits typically occur approximately six to eight months a er the plan s year end, a fiscal year end for the plan could more evenly distribute the organiza on s staff s workload. Filing deadlines would be easier to track if the year ends were consistent. Any discre onary profit-sharing contribu ons that may be made would be more easily determinable if the plan and organiza on s year ends were consistent. 4

5 [ Issue Three 2009 ] 403(b) Plans DOL Provides Limited Transition Relief Many administrators of 403(b) plans have expressed concerns with the changes to the annual repor ng requirements applicable to these arrangements, which are effec ve for plan years beginning on or a er January 1, Form 5500 revisions and related final regula ons eliminated special limited repor ng rules previously applicable to 403(b) plans. Therefore, beginning with 2009 plan years, administrators of 403(b) plans which are subject to Title I of ERISA (generally excludes governmental and church plans) must complete a detailed Form 5500 filing and, if a large plan, must file audited financial statements with the Form Small 403(b) plans will be eligible for a waiver of the requirement to a ach audited financial statements. Concerns from plan administrators stem from the historical treatment of 403(b) plans. Many of these arrangements were essen ally operated as individual contracts or accounts, under which employees could elect to enter into a variety of transac ons without the consent or involvement of the employer (such as loans, hardship distribu ons, transfers, etc.). As such, plan administrators believe it could be extremely difficult and/or costly, to both iden fy and obtain financial informa on pertaining to contracts/accounts issued prior to 2009 sufficient to include in the new detailed Form 5500 filing (including the audited financial statements). Specifically, contracts/accounts that have been transferred to other 403(b) vendors by par cipants could prove to be difficult to iden fy. Further, obtaining sufficient consolidated financial informa on on behalf of these, and other individual accounts, is of worry to plan administrators. Transi on Relief In Field Assistance Bulle n No , issued July 20, 2009, the Department of Labor ( DOL ) provided repor ng transi on relief on behalf of 403(b) plan administrators. The relief applies only to the Form 5500 annual repor ng requirements, including the requirement for those large plans to include an annual report of an independent qualified public accountant ( IQPA ). Specifically, the relief provides for circumstances under which the administrator of a 403(b) plan does not need to treat annuity contracts and custodial accounts as part of the employer s Title I [ERISA] plan or as assets for purposes of ERISA s annual repor ng requirements provided that certain requirements are sa sfied. In order for the relief to apply, an administrator of a 403(b) plan must make good faith efforts to transi on for the 2009 plan year to ERISA s generally applicable annual repor ng requirements. For those administrators sa sfying the good faith effort requirement, contracts/custodial accounts which meet all of the following do not need to be considered as plan assets: The contract/account was issued to a current or former employee before January 1, 2009; The employer ceased to have any obliga on to make contribu ons, and in fact ceased making contribu ons to the contract or account before January 1, 2009; All of the rights and benefits under the contract or account are legally enforceable against the insurer or custodian by the individual owner of the contract or account without any involvement by the employer; and The individual owner of the contract or account is fully vested in the contract or account. Further, the guidance provides that individuals whose only contracts/accounts under a 403(b) plan are excludable from the Form 5500 requirements by reason of the aforemen oned transi on relief do not need to be counted as par cipants covered under the plan for Form 5500 annual repor ng purposes. This transi on relief, therefore, will impact the determina on of whether some 403(b) plans are large or small, by poten ally reducing the number of par cipants. By impac ng the number of par cipants, the transi on relief will also affect whether or not a plan is required to include an audit report with the Form Finally, the guidance indicates that the DOL will not reject a Form 5500 on the basis of a qualified, adverse, or disclaimed opinion issued by an IQPA if the accountant expressly states that the sole reason for such an opinion was because such pre-2009 contracts were not covered by the audit or included in the plan s financial statements. Of concern to the DOL was the poten al for rejec on of Form 5500 filings that are incomplete due to the inability to iden fy all par cipant contracts and accounts to be included as plan assets, and obtain other financial informa on required to be included in the plan s financial statements. The DOL hopes this guidance will assist in avoiding the issuance of adverse, qualified or disclaimer opinions, and avoid the rejec on of Form 5500 filings with such opinions. (Continued on page 6) 5

6 [ Plante & Moran NOT-FOR-PROFIT ADVISOR ] 403(b) Plans DOL Provides Limited Transition Relief (Continued from page 5) Issuance of this guidance demonstrates acknowledgement by the DOL, of concerns voiced by 403(b) plan administrators with respect to the new annual repor ng requirements beginning with 2009 plan years. Notwithstanding this acknowledgement, the DOL stresses that the guiding principle must be to ensure that appropriate efforts are made to act reasonably, prudently, and in the interest of plan s par cipants and beneficiaries. This is the case, despite the fact that there will be instances when full compliance may not be possible for Furthermore, the DOL indicates an expecta on that accountants who are engaged to conduct benefit plan audits will no fy plan administrators of 403(b) plans of issues and irregulari es discovered during the audit process which could materially affect a plan s audit expenses/other costs associated with making the transi on to ERISA s annual repor ng requirements. If you have any ques ons please contact Aaron Prince at IRS Seeking Comments on Taxation of Employer-provided Cell Phones The IRS recently issued No ce to request comments on several proposed simplified treatments of the taxa on of employer-provided cell phones and other similar electronic telecommunica on devices. Under current law, the value of such devices is taxable to employees except to the extent of any business use that is properly substan ated. Although the commissioner of the IRS has called upon Congress to pass legisla on elimina ng taxa on of the personal use of work-related electronic devices such as cell phones, in the absence of such legisla on, No ce proposes several different methods for determining the value of personal use to be included in employees income and reported on Form W-2, and solicits sugges ons for alterna ve treatments. In order to u lize any of these simplified methods, employers would be required to implement a wri en policy requiring employees to carry and use the employer-provided devices for business purposes, and prohibi ng personal use except for de minimis personal use. The proposed methods are as follows: Minimum personal use method Under one of two methods, employers could deem all of an employee s usage as business usage: first, if an employee substan ates that he owns and uses a personal cell phone for personal purposes during work hours; or second, a defined amount of personal use could be considered minimal and would be disregarded. Sta s cal sampling method An employer could use sta s cal sampling techniques to determine a percentage of personal use to apply to each employee s total usage. Safe harbor substan a on method In absence of any substan a on, the IRS has proposed a safe harbor of 75 percent business use, with 25 percent treated as taxable personal use. The IRS will be accep ng comments on these proposals through September 4, Future ar cles will include any updates as to final regula ons. 6 IRS Posts New Form 990 Guidance on Website The IRS has recently posted several ps and FAQs regarding the new Form 990 on its website. The pos ngs include: A new Form 990 prepara on checklist, FAQs regarding the governance, policy, and procedural informa on contained in Part VI of the 990, and FAQs regarding the execu ve compensa on informa on to be reported in Part VII and Schedule J of the 990. Although much of the informa on provided in these pos ngs is included in the instruc ons to Form 990, having the informa on arranged in a Q&A format may be helpful to preparers as they become acquainted with the new form.

7 [ Issue Three 2009 ] Meet Our Contributing Authors aaron.prince@plantemoran.com A P Aaron Prince, CPA Employee Benefits Consul ng Group Aaron Prince is an associate and consultant in Plante & Moran s employee benefits consul ng group. He counsels clients on the design and administra on of re rement, health, and welfare benefit plans. In addi on, he is heavily involved in assis ng not-for-profit and governmental en - es with the design and administra on of qualified, 403(b), and eligible 457 plans. Aaron can be reached at or aaron.prince@plantemoran.com. lynne.huismann@plantemoran.com LYNNE HUISMANN Lynne Huismann, CPA Partner-in-Charge of Tax Services for Exempt Organiza ons Lynne has more than 20 years of experience in public accoun ng. She specializes in taxa on of exempt organiza ons, including charitable organiza ons, private founda ons, social clubs, and trade associa ons. She has provided tax advice in all areas of exempt organiza on taxa on, including license and royalty issues, state and local taxa on, reasonable compensa on and private inurement issues, planned gi s issues, and all areas of Form 990, 990-T, and 990PF reporting. Lynne is a presenter at numerous in-house training sessions and to external groups on tax issues of tax-exempt organiza ons. She has also authored a number of ar cles for not-for-profit newsle ers for clients and friends of the firm. Lynne can be reached at or lynne.huismann@plantemoran.com. carrie.mendoza@plantemoran.com CARRIE MENDOZA Carrie Mendoza, CPA Manager Carrie Mendoza, a manager with Plante & Moran, has more than eight years of experience providing assurance services and business advisory services to clients. She specializes in employee benefits plans, higher educa on ins tu ons, and not-for-profit organiza ons, and is a member of Plante & Moran s 403(b) audit implementa on task force. Carrie can be reached at or carrie.mendoza@plantemoran.com. CLIENT FEEDBACK IS IMPORTANT TO US! Please access our client sa sfac on survey at clientsa sfac on.plantemoran.com to share your input. 7

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