eligibility in a 403(b)

[Guest andmik]

I have a 403(B) plan, which claims church plan status. They have a U.S. citizen working outside the country as a contract employee on a contract basis. The question that has arisen is whether that contract "employee" is eligible to participate in the Plan or excluded without any specific exclusion written into the document.

I know the church plan has alot more freedom but am trying to work through the issue. Even your insight from an ERISA perspective will be appreciated.

Thank you in advance for your feedback.

andmik

[mbozek]

403(B) plans are available only to persons who are employees, not independent contractors. I dont know what you mean by contract employee. The question is whether the person is an employee for income tax withholding purposes. A church plan is not required to have a written plan document because it is not subject to ERISA. The only requirement is that the employee sign a salary reduction agreement if there are employee contributions. The contract employee is not required to be included in any specific plan.

[Guest andmik]

mjb,

Thanks for your feedback I appreciate your insight.

The person I am referring to lives in another country and from what I am being told does not work exclusively for the Company, but rather provides their services to other Companies as well.

It sure sounds like an independent contractor, not unlike hiring someone to come in to fix your dishwasher, except the services the person provides is directly related to the work the Company does, perhaps even intregral.

Thanks again.

andmik

[Guest getaxa]

The easiest way I can figure out who can participate in a 403(B) arrangement is by asking 1 question. Does the person in question receive a W2 at the end of the year? If the answer is yes, then they can participate if no W2 (1099 or other) then they cannot.

[jpod]

I certainly agree with getaxa's approach and it is what I advise clients for both 403(B) and 401(a)/401(k) plans, with one caveat:

If the employer is playing fast and loose with the employee vs. independent contractor distinction, it should understand that failure to allow an alleged indedpendent contractor to participate could have an adverse impact on the entire plan if that individual is subsequently determined to be an employee, if that individual would otherwise meet the plan's eligibility requirements. In the case of a 403(B) salary reduction only plan, while the universal availability requirement does not apply to plans maintained by 3121(w) "churches" and "church-controlled" organizations, it would apply to any other plan, even one that is a 414(e) "church plan."