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Confusing 403(b) elgibility provisions.


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a large plans SPD states "provided you are an eligible employee, you are eligible to participate in the Plan once you satisfy the Plan's eligiblity conditions"

if you are a member of a class of employees identified below, you are not an ELIGIBLE employee for all plan purposes. The employees who are excluded are:

-----employees who normally work less than 20 hours per week

It then states "Provided you are an ELIGIBLE employee, you will be able to make elective deferrals beginning on your date of hire"

First question....Well it states above, if you are not working more than 20 hours a week, you are ineligible. This statement contradicts the Universal Availability rules, yes?

The SPD then states, provided you are an eligible employee, you will be eligible to participate in Employer contributions once you satisyf the applicable age and service requirements. They are
Matching contributions when you attain age 21 and when you complete 24 months of service. You will have completed the required number of months if you are employed by us at any time after you completed the number of months measured from your initial employment commencement date. Then it goes on to state that the entry date for employer contributions is first day of the month immediately preceding the date you satisy the eligibility requirements.

Second question....once an employee meets 24 months of employment and works 20 hours a week, they are eligible for the match. If they start working less than 20 hours a week after meeting eligibility they still get the match, yes?

Third question...If they terminate after meeting match eligibility, they are rehired they enter the plan immediately and will still get a match if they defer, correct?

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if this helps, hopefully solves one of your questions, direct from http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-403(b)-Tax-Sheltered-Annuity-Plans

May an employer sponsoring a 403(b) plan exclude any employee from contributing in the plan?
Generally, yes. A 403(b) plan must generally allow all employees to make elective deferrals to the plan. Under the universal availability rule, if an employer permits one employee to defer salary by contributing it to a 403(b) plan, the employer must extend this offer to all employees of the organization with the following exceptions:
  • employees who will contribute $200 or less annually;
  • employees who participate in a 401(k) or 457(b) plan or in another 403(b) plan of the employer;
  • employees who normally work less than 20 hours per week; and
  • students performing services described in Code Section 3121(b)(10).
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with respect to your other question, I would expect the basic plan document (if it's a volume submitter) to answer some questions.

for instance, here is language from Accudraft

Participation By Employees Whose Status Changes. If an Employee who is not an Eligible Employee

with respect to a particular type of contribution (or a component of the Plan) becomes an Eligible Employee

for such contribution (or component), then the Employee will participate in the Plan immediately with

respect to that type of contribution (or component), so long as (1) the Employee has satisfied the minimum

age and service requirements for that type of contribution (or component) and (2) the Employee would have

previously become a Participant with respect to that type of contribution (or component) had the Employee

always been an Eligible Employee for that type of contribution (or component). The participation of a

Participant who is no longer an Eligible Employee with respect to a particular type of contribution (or

component) will be suspended and such Participant will be entitled to an allocation of that type of

contribution (and any applicable Forfeitures) for the Allocation Period only to the extent of any applicable

Hours of Service or Periods of Service completed while an Eligible Employee for that type of contribution

(or component). In addition to satisfying any other conditions, the Sponsoring Employer may elect in the

Adoption Agreement that the Employee must be an Eligible Employee on the last day of the Allocation

Period in which such participation is suspended. Upon again becoming an Eligible Employee with respect to

that type of contribution (or component), a suspended Participant will immediately resume eligibility with

respect to that type of contribution. Years of Service or Periods of Service while an Employee is not an

Eligible Employee will be recognized for purposes of determining the Vested Interest of such Employee with

respect to a particular type of contribution (or component) in accordance with Section 4.6.

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  • 3 weeks later...

QDROphile, I was under the impress that pretty much all plans were subject to ERISA, but I have a potential new client who is trying desperately not to be, since they've never filed a 5500. They have never had a plan document, making it hard to tell what the provisions are. The only employer involvement appears to have been sending in contributions. The insurance company says they are a non-ERISA plan and refuses to disclose any information to the employer without participant consent.

Any tips for traps that I should be looking for that would make them subject to ERISA?

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Is it an employer not subject to ERISA? (public school, perhaps?) If not - that is, if it is an employer otherwise normally subject to ERISA, and there are employer contributions, it is subject to ERISA - you don't have to waste time and effort looking any further for potential traps.

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Your guide will have to be the mendacity of Departement of Labor Field Assistance Bulletin 2007-2 at http://www.dol.gov/ebsa/regs/fab2007-2.html

Although the insurance company resistance is your friend, I believe that limiting employees to the use of a single insurance company made the plan an ERISA plan even before the killer 403(b) regulations came out. We used the standard of a minimum of three providers to get by the involvement of the employer in determining the investments/benefits.

I think correcting for the Form 5500 filing is worth getting away form all of the concerns about exemption. However, because if its lie, the DOL will be hard-pressed to challenge the status of a plan that meets the "old" exemption standard but for what is absolutely necessasy to comply with the 403(b) plan tax regulations. It looks like your client is inclined to be a minimalist anyway.

Any chance they want to become a church?

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The IRS regulations' less than 20 hour per week exclusion for 403(b) plans isn't compatible with ERISA eligibility rules. With the current regulations, when you reach the point that ERISA forces you to allow someone to defer who could be excluded under the regulations <20 hour per week provision, then the all-or-nothing rule in 1.403(b)-5(b)(4)(i) forces you to stop using the <20 hour per week exclusion. This would be someone who previously completed a year of service and then drops below 1,000 hours in a later year. The regulations say they would be excluded starting the following year, until they have another year during which they are credited with 1,000 hours. ERISA prevents you from doing that.

... if any employee listed in paragraph (b)(4)(ii)(E) of this section has the right to have section 403(b) elective deferrals made on his or her behalf, then no employee listed in that paragraph (b)(4)(ii)(E) of this section may be excluded under this paragraph (b)(4).

It is still possible for a deferral only 403(b) for a non-Church and non-governmental non-profit to not be ERISA covered.

(QDRO was faster with the link)

K2, if they don't have a plan document post 2009, the reduced fee for EPCRS filing expires at 12/31/2013.

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all that is clear as mud.

further research from (and other sources)

http://welcomentsaa.org/how-does-the-20-hour-rule-work-for-403b-plans

  • For example: Jane was hired by the Big Diehl School District on Sept. 1, 2012 as a substitute teacher. The employer determines that Jane will not work more than 1,000 hours during her first year of employment. On Dec. 1, 2012, Jane took a permanent substitute position to fill in for a teacher who goes on maternity leave. During her first year of employment (9-1-2012 to 8-31-2013) she works more than 1,000 hours. Jane is hired as a full-time teacher on Sept. 1, 2013. Since she did in fact work more than 1,000 hours in the previous year, she is eligible immediately to defer from her salary into the 403(b). As long as Jane works for the Big Diehl School District she will be eligible to defer from her salary regardless of how many hours she works in the future.

    Practice Pointer: Remember, this is not necessarily the case for employer contributions. There can be an ongoing eligibility requirement for employer contributions. Read the plan document to determine how eligibility works with respect to employer contributions. Even though IRS speakers have weighed in on this question over the last few years, be prepared for sample IRS language to explain this as we get closer to preparing prototype documents, which we hope will provide more guidance in this area.

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