Does your ERISA 403(b) Plan need a financial statement audit?

Posted by Maria T. Hurd, CPA

ERISA Limited Scope AuditChecklist for Counting Participants as of the Beginning of the Year

Many nonprofits who sponsor ERISA 403(b) plans are not aware that they need an audit, because counting participants involves much more than knowing how many full-time employees the organization has or how many account balances are in the plan. Especially in the case of nonprofit organizations, the universal availability rules and the ability to exclude certain contracts pursuant to DOL Field Assistance Bulletin 2010-1 add a layer of complexity that requires the employer to give careful consideration to the participant count.

To assist 403(b) plan sponsors in computing an accurate participant count as of the beginning of each year, we have created the following step- by-step checklist:

 ________ Enter Number of Forms W-2 issued in the Prior Year
+  ________ Enter Number of Terminated Employees With a Balance in the Plan
=  ________ Total: If this total is greater than 120, please continue.
 ________ Subtract: <Excluded employees per the plan document as applicable>
 ________ 1) Number of employees who normallywork less than 20 hours per week:
a) For first year of employment, does the er reasonably expect the employee to work less than 1,000 hours
b) For subsequent years, if the employee worked less than 1,000 hour in the previous year
 ________ 2) Employees who had not met the plan’s eligibility requirements as of the end of the Prior Year
 ________ 3) Identify excludible contracts pursuant to DOL’s Field Assistance Bulletin as follows:
a) contract issued to a current or former employee before January 1, 2009
b) employer ceased   contributions and has no obligation to contribute to the contract before   January 1, 2009
c) the individual owner of the contract can exercise all rights and benefits under the contract without the employer’s involvement
d) the individual owner of the contract is fully vested in the contract or account
=  ________ Subtotal: Total Number of eligible participants as of December 31st of the Prior Year
+  ________ Add: Newly Eligible participants whose entry date was January 1
=  ________ Total:If this number is greater than 120, this plan definitely needs an audit for the plan year beginning January 1.
If this number is between 80 and 120 participants, please refer to our blog regarding the 80-120 rule


Each step on the list above results from specific legislation regarding the correct way for a 403(b) to count its participants as of the beginning of the year.  An accurate participant count is an important first step in determining whether an ERISA plan needs to attach audited financial statements to their Form 5500. Large ERISA plans must engage an independent qualified public accountant (IQPA) to audit the plan’s financial statements.  Most small plans are not required to have audited financial statements. For more detail on the rules affecting each step of this determination, please refer to our previous blog entries:

Counting Participants is not as easy as 1, 2, 3! – From The Art of the Qualified Plan Audit

403(b) Plans: Universal Availability Exclusions – From The Art of the Qualified Plan Audit

Field Assistance Bulletin No. 2010-01 – From the United States Department of Labor

A Nonprofit’s Guide to Navigating the ERISA Audit Requirements – From The Belfint Nonprofit Ledger

I don’t want to grow up, I want to be a small plan! – From The Art of the Qualified Plan Audit

BLS is available to assist any ERISA 403(b) plan sponsors who need assistance with this complicated determination. Contact me at 302.225.0600 or


Photo by Mufidah Kassalias (Licanse)