rocknrolls2

No HCEs in 403(b) Plan. Does Universal Availability Still Apply?

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A client sponsors a 403(b) plan for its employees.  However, there are no HCEs who are eligible to participate in it.  Does the plan still have to satisfy the universal availability requirement?

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Yes.  Section 403(b)(12) does not include an exception for a plan without HCEs.  That makes no sense, as you point out, but it's still there.

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"makes no sense" is an extreme conclusion.  You may say that it seems incongruous with the apparent principles underlying rules that apply to qualified plans.  All of the tax rules are arbitrary at some level.  We try to make sense of them by discerning patterns and paying attention of statements of intent by those who make the rules.  

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Which is why the OPs question is a good one. Many laws and regulations have a lot of exceptions and exceptions to the exceptions. If the intent of the "universal availability" rule was to exempt the plan from ADP tests, then if such plan has no HCEs, why would the law still require the universal availability requirement to apply?

Well of course, as stated above, the answer is because there are no exceptions this time, maybe a 401(k) plan will suit the company better!

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I'm sure you've considered this, but since the universal availability requirement applies only to deferrals, it isn't necessarily that big a deal anyway. And if a governmental (public school) 403(b), you can be as discriminatory as you want to be on the employer contributions (obviously not race, religion, gender, etc...)

I'm so conditioned to being paranoid about nondiscrimination in "regular" plans that I sometimes have to take a step back and reset my thinking when a governmental plan question is involved.

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