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403(b) Plans and Fiduciary Liability
By Rick Grochowske, CPA
Senior
403(b) plans (formally called tax deferred annuity plans) are popular with many nonprofit organizations that wish to offer their employees a way to save for retirement. These plans are unique in that they are  only available to tax-exempt organizations, such as 501(c)(3) charitable organizations, public schools, as well as public and private colleges and universities. A 403(b) plan is similar to a 401(k) plan in that it allows participants to make salary reduction contributions to the plan. 403(b) plans may also include a Roth contribution feature similar to Roth 401(k) plans. Each plan has certain key elements, such as: a written plan document, a trust fund to hold the plan's assets, a recordkeeping system, and documents to provide plan information to employees participating in the plan and to the government.
Administering a plan and managing its assets requires certain actions and involve specific responsibilities. For employers to meet their responsibilities as plan sponsors, they need to understand the basic rules set forth by the Employee Retirement Income Security Act (ERISA) of 1974. ERISA sets standards of conduct for those who manage an employee benefit plan and its assets (called fiduciaries). Some of these fiduciary responsibilities include: acting solely in the interest of plan participants and their beneficiaries, following the plan documents (unless inconsistent with ERISA), diversifying plan investments, and paying only reasonable plan expenses.
Employers that currently have a 403(b) plan need to be aware of their fiduciary responsibilities set forth by ERISA. Fiduciaries that do not meet their responsibilities may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of the plan's assets. One way fiduciaries can demonstrate that they have carried out their responsibilities properly is by documenting the processes used to carry out their actions. We suggest at a minimum that an investment committee be formed and minutes recorded for the meetings held, at least, on an annual basis. The committee should consist of both management and non-management employees. This is for the protection of the organization's management in terms of its fiduciary responsibilities to the plan, by showing the evaluation and process that went into plan-related decisions. As an additional protection for plans, those who handle plan funds or other plan property generally must be covered by a fidelity bond. A fidelity bond is a type of insurance that protects the plan against loss resulting from fraudulent or dishonest acts of those covered by the bond. If you have questions or would like more information, contact our Not-For-Profit Services Team. We are happy to help you.
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WKMR Sponsors Biz Connection Radio Show
WKMR is proud to sponsor the Biz Connection Radio Show, a weekly radio program hosted by Jim Rosetti & Ron Nielsen aimed at the business community. Business owners of large and small companies, and at all stages of their business life, are guests on the show.
The show is broadcast in the Milwaukee area on WZTI-AM 1290 & WZTI-FM 100.3 at 9 a.m. on Saturday mornings. More information on the show and a schedule of upcoming guests can be found at http://bizconnectionwi.com/index.php.
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WKMR Fraud Services
If you suspect fraud may be occurring in your organization, there is action you can take. At Winter, Kloman, Moter & Repp, S.C. our Certified Fraud Examiners (CFE) can assist you with putting internal controls in place to help prevent and detect fraud. Our CFEs have the ability to:
- Identify the underlying factors that motivate individuals to commit fraud
- Examine data and records to detect and trace fraudulent transactions
- Interview suspects to obtain information
- Write investigation reports
- Advise clients as to their findings
- Testify at trial
If you suspect fraud is occurring at your organization or would like help putting internal controls in place, give us a call.
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Contact us:
Brookfield Oconomowoc
235 N. Executive Drive, 1040 Oconomowoc Parkway
Suite 160 Oconomowoc, WI 53066
Brookfield, WI 53005 262.567.6540
262.797.9050
Watertown
138 Hospital Drive, Suite 100
Watertown, WI 53098
920.261.6767
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At Winter, Kloman, Moter & Repp S.C., our not-for-profit team provides quality audit, accounting, tax, and consulting services to a variety of not-for-profit agencies, government funded businesses, private foundations, and assorted charitable organizations. Our experienced team has helped many not-for-profit organizations throughout Southeastern Wisconsin grow and thrive including:
- Human Service Agencies
- Cultural & Arts Organizations
- Charitable & Religious Organizations
- Educational & Day Care Institutions
- Professional & Trade Associations
- Assisted Living Facilities
- HUD/WHEDA Housing Projects
- Government-funded For-Profit Businesses
We concentrate on helping you best manage public or donated funds, analyzing how to get the most from your resources and helping you implement your plans to stretch every dollar. Our team of professionals understands your complex financial reporting needs, and will help you to accurately report your finances in an understandable way. We provide the independent audit and accounting services required by many of your funding sources by taking a value-added approach, implementing ever-changing tax reporting requirements, providing information technology consulting, and working with every aspect of your organization to support your success.
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Not-For-Profit News, click on the link below.
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