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403(b) Universal Availability
Rev. 11/20/09; E-mail Alert 2009-18

What Is Universal Availability?
The nondiscrimination rule for eligibility to defer (including Roth) to a 403(b) plan is known as universal availability. Generally, everyone must be able to defer. There is no age and service requirement permitted. The individual must be expected to defer at least $200 a year. The universal availability requirement applies to all 403(b)s, except for church plans. The universal availability rule permits all the right to defer and thus does not favor HCEs; and because the ability to make deferrals is universally available, there is no ADP test.

Basically, if one employee can make deferrals, then all employees must have the opportunity to make deferrals. Limited exclusions are permitted.

The allowable exclusions are:
•
 If an individual is eligible to defer under another plan of the employer, such as:  
 
•
Another 403(b) Plan  
 
•
A 457(b) governmental plan  
 
•
A 401(k) plan of employer  
•
 Work study students  
•
 Non-resident alien with no U.S. source income  
•
 Normal work week less than 20 hours  
 
•
Or a lower number as stated in the plan  
NOTE: Final regs changed exclusions in Notice 89-23  
•
Church plans are exempt by definition  
     
Universal Availability Rule  
• Rules for employees whose normal work week is less than 20 hours:  

 

•

As of hire date, employer reasonably expects employee to work less than 1,000 hours of service in 12 months, and

 

•

For each succeeding year (anniversary or plan), the employee worked less than 1,000 hours of service in the preceding year.

  

•

All employees in this category must be excluded.

 
 
Exclusions No Longer Allowed Under the Final Regs.
•
 Collectively bargained employees  
 
•
 Different than 401(a), 401(k)  
•
 Visiting professors  
  • But they can participate in original school plan  
•
 Vow of poverty through religious affiliation  
•
 Employees who make a one-time election to participate in a governmental plan  

 

 

 

  

Transition Rules

  

•

Employees under collective bargaining agreement;

  

 

•

Plan that excluded these employees prior to 7-26-07, have until the first day of first tax year beginning after 7-26-10 to remove the exclusion.

•

Plans that excluded:

 

 

•

Visiting professors; employees on a vow of poverty; employees who made a one-time election;
 
•
 As of 7-26-07, have until the first day of the first tax year beginning after Dec. 31, 2009, to remove the elections.
• Certain governmental plans have until January 1, 2011 to remove exclusions such as for temporary governmental employees.  
     
One-Time Irrevocable Election Rule  
One-time irrevocable election made at the time of initial eligibility. Such contributions are not salary reduction contributions but are deemed to be employer contributions.  
 
•
 Usually these are mandatory contributions.  
 
•
 Often the employer adds a NEC equivalent to the mandatory contribution  
•
 Example: 4% irrevocable election is required at time of hire and may not be stopped until severance. Employer also makes 4% NEC, so total of 8% contributed.  
     
Effective Opportunity  
Employees must be provided “Effective Opportunity” to defer.  
 
•
 Including notice to employees of right to make a salary reduction election  
 
•

Time period for making the election

  
 
•
 No conditions imposed  
 
•
 Annual opportunity to make or change election  
       
Universal availability applies separately to:  
 
•
 Each tax-exempt organization covered by a 403(b)  
 
•
 Each governmental entity that is not a part of a common payroll, i.e. different states  
 
•
 Each employer in the control group  
 
•
 Operating units with geographical distinction (facts and circumstances) and not in same SMSA
       
RECAP  
Eligibility for Salary Reduction Contributions  
•
 Not at all like 401(k) Plans  
•
 “Universal availability” – All employees must be permitted except those:  
 
•
 Who normally work less than 20 hrs/wk  
 
•
 Who are nonresident aliens  
 
•
 Student providing services (usually to a school) described in 3121(b)(1)  
 
•
 Eligible to participate by salary reduction in other deferral plans sponsored by the employer
 
•
 Who do not wish to contribute at least $200 per year to a 403(b) account. §403(b)(12)(A)(ii)
•
 Violation results in plan failure  
 
•
 Correction under EPCRS  

Bill Grossman, ERPA, QPA

 

403(b) Written Plan Deadline

The IRS deadline of December 31, 2009 for 403(b) plans to comply with the requirement to have a written plan document is fast approaching. Click here for the details. Click here for more information on McKay Hochman’s 403(b) plan documents.

403(b) eSeminars

Click here for more information and/or to register for our acclaimed 403(b) eSeminar series, updated for 2009. Get the most up-to-date information about 403(b) plans — and the most continuing education credits for your money — with our six-part series.

 

 

To learn more, call 973-492-1880 or e-mail info@mhco.com.

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