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401Kerfuffle

403(b) - 410(b) coverage

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A 403(b) plan with universal availability for elective deferrals. The plan uses the excludable classification of employees who work less than 20 hrs/wk.

Does the excludable class of employees get counted in a 410(b) coverage test for elective deferrals?

 

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Section 410(b) doesn't apply to 403(b) deferrals. It does apply to other types of contributions in a 403(b) plan.   If it is not a Church plan, the universal availability requirement of 1.403(b)-5(b) applies to 403(b) deferrals.
 

Quote

 

1.403(b)-5(a) Nondiscrimination rules for contributions other than section 403(b) elective deferrals—(1) General rule. Under section 403(b)(12)(A)(i), employer contributions and after-tax employee contributions to a section 403(b) plan must satisfy all of the following requirements (the nondiscrimination requirements) in the same manner as a qualified plan under section 401(a):

(i) Section 401(a)(4) (relating to nondiscrimination in contributions and benefits), taking section 401(a)(5) into account.

(ii) Section 401(a)(17) (limiting the amount of compensation that can be taken into account).

(iii) Section 401(m) (relating to matching and after-tax employee contributions).

(iv) Section 410(b) (relating to minimum coverage).

(2) Nonapplication to section 403(b) elective deferrals. The requirements of this paragraph (a) do not apply to section 403(b) elective deferrals.

 

Even with the recent IRS guidance on once in - always in for the < 20 hours per week exclusion, we recommend against using it.  A single mistake can result in expensive retroactive corrections because of the all or nothing rule that applies.

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14 hours ago, Kevin C said:

Even with the recent IRS guidance on once in - always in for the < 20 hours per week exclusion, we recommend against using it.  A single mistake can result in expensive retroactive corrections because of the all or nothing rule that applies.

What Kevin said!! We have a few "legacy" plans that still use it, and it is a nightmare for compliance, particularly since the clients who tend to use it also tend to be less than stellar in the human resources arena...

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