403(b) and "deemed" 125 compensation

[Guest mike webb]

Does Revenue Ruling 2002-27, which address “deemed 125” compensation under so-called “mandatory” 125 plans, affect 403(B) plans in a manner similar to qualified plans? Or is there no effect, since 403(B) plans utilize a different definition of compensation (IRC 403(B)(3) for contribution limit purposes?

[Guest Milton Wright]

The ruling says that if there's no election out, employee contributions are not really covered by section 125 and therefore can't be included under a definition of compensation that pulls in contributions to a section 125 plan. It seems to me that the same logic would apply in the 403(B) context, since the 403(B)(3) definition also picks up section 125 contributions. But since the ruling doesn't address 403(B)(3), I don't know whether you could use the "deemed 125 compensation" model amendment or not (and the model amendment has problems of its own, at least if the employer has any need to obtain information about other coverage an employee may have).