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403b Universal Availability


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403b plan has a match, whereby you only get a 2.5% if you contribute at least 2.5%. Therefore, they have always told employees the minimum ddeferral rate is 2.5% of pay, thus avoiding nayone missing out on the match.

Is this a problem, or is it OK? The document simply states that the employer can set the minimum contributions.

Austin Powers, CPA, QPA, ERPA

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I think you have a point. I am familiar with the minimum $200 per year requirement, but to require 2.5%? I could never figure out why employers attempt to find the grey areas. I think this is pushing the envelope a little, because at what point would you say 'enough is enough'? If they can say 2.5% (an amount which may equate to more than $200 per year for some participants), what's to preclude them from say 6%?

I do believe you have a point.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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I think they have a potential problem. What happens the first time someone wants to defer (for example) 2% and the employer says no? if 2% would be more than $200 for the year, I think they would fail the effective availability requirement.

Do their deferral election forms and SPD say the minimum deferral is 2.5%?

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What is the $200 require,ment? The "minimum" deferral cannot prevent someone from deferring if they are expected to defer at least $200?

It is one of the exceptions to the universal availability requirements. Others include employees who normally work 'less than' 20 hours per week, employees who are eligible to participate in other deferrals arrangements of the employer, and students (defined under some special code section). There may be others, but these are the ones I am familiar with off-hand.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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1.403(b)-5(b)(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.

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I cannot understand why employers insist on putting themselves in harms way by inserting crazy provisions that are not allowed. Universal availability does not allow exclusion of participation for not making a contribution of a specific % of pay- only if the amount is less than $200 a year. Excluding employees from the plan is impossible to comply with other than exclusion of students who are exempt from FICA tax so plans should allow participation by all other employees but only match contributions that exceed a specific % of pay. Any other exclusions from the plan will result in an expensive audit.

The only way a plan with a minimum % contribution requirement would comply with the 403b regs is if the employer maintained anothe r403b plan that allowed contributions by all employees as long as they are at least $200 a year.

mjb

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I cannot understand why employers insist on putting themselves in harms way by inserting crazy provisions that are not allowed. Universal availability does not allow exclusion of participation for not making a contribution of a specific % of pay- only if the amount is less than $200 a year. Excluding employees from the plan is impossible to comply with other than exclusion of students who are exempt from FICA tax so plans should allow participation by all other employees but only match contributions that exceed a specific % of pay. Any other exclusions from the plan will result in an expensive audit.

You and me, both. It's as if they go out an try to push the envelope as if they have something to gain. Especially considering that it is a non-profit. What is to be leveraged by the company from adding these ridiculous provisions? I, personally, do not believe it is all on the employer. I often wonder if they are being led by advisors who are trying to be cute (by offering something that the financial world has never offered for the sake of being different).

It's just unfortunate.

CPC, QPA, QKA, TGPC, ERPA

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