Universal Availability still has me confused!

[Guest Boilerburm1]

Can an ERISA 403(b) plan use entry dates so long as they comply with the 410(b)(4) rules on service? For example, can they have a 90 day waiting period for all employees, and then let all employees in on the first day of the quarter following 90 days of service?

Thanks in advance

[ERISAnut]

Yes, but only for the EMPLOYER contribution; not the salary deferrals. The salary deferrals are the only amounts subject to the universal availability requirements.

[J Simmons]

Another way of saying it is:

1-no minimum age and service requirements may be imposed on salary deferrals. Just the minimum schedule requirement (20 hours or less per week, alternatively met by a 1,000-hour year of service) and/or the $200/year minimum, but

2-410(b) minimum age and service requirements may be imposed for employer contributions.

[Guest Boilerburm1]

Thanks to both for the quick reply. That makes sense.

[TLGeer]

Church plans can have waiting periods. that's churches, conventions or associations and qualified churh-controlled organizations.

[ERISAnut]

Yes, since the universal availability rules do not apply to churches. There are many things that churches can do that other entities cannot. Churches are not even required to have written plans.

[Slider]

I think I agree with ERISAnut on the application of the universal availability rule for salary deferrals to 403(b) plans subject to ERISA and the "expected to work less than 20 hours a week exclusion mentioned above. It would be nice if IRS could make itself clear on this.

According to the regulations regarding universal availability, ERISA plans, in addition to looking for guidance under the 403(b) regulations, also have to look to Code Section 410(a) for guidance. And here is my confusion: Apparently the IRS does not consider an exclusion for employees who are "expected to work less than" a certain number of hours, be it 20 in a week or 1,000 in a year, to be a valid exclusion for purposes of eligibility. In 2006, the IRS issued a Quality Assurance Bulletin making its positon clear and directed plan examiners to not issue determination letters with an exclusion based on individuals expecting to work less than a certain number of hours.

So what we have is the 403(b) regs allowing such an exclusion, but seems that the IRS, under 410(a) does not allow such an exclusion and the 403(b) regs seem to defer somewhat to 410(a). As a result, if that is the case, and 410(a) takes precedence, it would appear that the less than 20 hours a week exclusion does not apply to ERISA plans; thus, it would seem that all employees would have to be given the right to participate in salary deferrals immediately in an ERISA 403(b) plans.

I'm just wondering if anybody else has come up against this and how it's being dealt with.

[ERISAnut]

Yes,

You have to keep apples to apples and oranges to oranges. When qualified plans are at stake, you cannot use a service class exclusion to define your eligible group. This means that you cannot use criteria that is actually defined on a customary work schedule to define your class of employees. This means that you cannot use 'temporary', 'part-time', or 'seasonal' to the extent that these terms are being defined in the plan using a customary work schedule.

403(b) doesn't take it that far. So, you have to limit the application to only those rules that can be applied to 403(b), because in certain instances you are comparing an apple to an orange.

Hope this helps.

[Guest Sieve]

-nut--

The final Treasury regs allow the employer to look to the 1,000 h/s standard after the employee's initial 12-month period of employment, but to some more fluffy standard of "reasonably expects" beforehand. (Treas. Reg. Section 1.403(b)-5(b)4(iii)(B).) As you point out, this is not a qualified plan, so the IRS rules in the 403(b) regs don't match--and don't have to match--with IRC Secton 410(a). (IRC Section 410(a) is referenced only once in the universal availability regs, and then only to determine what an "hour of service" is--which then cross references to the ERISA regs. (Treas. Reg. Section 1.403(b)-5(b)(4)(iii)(B)(1).)) So, if it's not ERISA-covered, this 403(b) standard is the only standard that must be met.

But, if it's an ERISA-covered 403(b) plan, then the "reasonably expects" standard of the IRS regs appears to conflict with ERISA Section 202 (which requires use of the 1,000 h/s standard no matter how many h/s an employee is expected to complete). Can we comply with the IRS regs in the employee's first year (keep an employee out if not meeting the "reasonably expects" standard) and also comply with ERISA's statutory minimum eligibility standards? Or am I still missing something from your answer to Slider?

[Slider]

I found the following in the preamble to the proposed regs and it might be applicable here:

The nondiscrimination and the universal availability requirements are in addition to other applicable legal requirements. . .Another example is that, while employees who normally work fewer than 20 hours per week may be excluded under the universal availability rule, employers who maintain plans that are subject to Title I of ERISA should be aware that Title I of ERISA includes limitations on the conditions under which employees can be excluded from a plan on account of not working full time and that these limiations would generally not permit an exclusion for employees who normally work fewer than 20 hours per week.

It's tough to tell whether this applies only to employer contributions or to both salary deferrals and employer contributions.

[IRA]

Does 410(b)(6)(C have any application to the universal availability rule?

[Kevin C]

I don't see any reference to 410(b)(6)( C) in 1.403(b)-5(b), so apparently it does not apply. Would 1.403(b)-5(b)(3) help?

(3)Special rules

(i) In the case of a section 403(b) plan that covers the employees of more than one section 501©(3) organization, the universal availability requirement of this paragraph (b) applies separately to each common law entity (that is, applies separately to each section 501©(3) organization). In the case of a section 403(b) plan that covers the employees of more than one State entity, this requirement applies separately to each entity that is not part of a common payroll. An eligible employer may condition the employee's right to have section 403(b) elective deferrals made on his or her behalf on the employee electing a section 403(b) elective deferral of more than $200 for a year.

(ii) For purposes of this paragraph (b)(3), an employer that historically has treated one or more of its various geographically distinct units as separate for employee benefit purposes may treat each unit as a separate organization if the unit is operated independently on a day-to-day basis. Units are not geographically distinct if such units are located within the same Standard Metropolitan Statistical Area (SMSA).