Eligibility in 403(b) plan

[nancy]

We are taking over a 403(B) plan that was drafted with eligibility requirements of age 21 and 1 year of service for the salary deferral and the employer contribution. Does the eligibility on the salary reduction portion cause the plan to lose it's 403(B) status or merely subject them to ADP testing? Can this be corrected in EPCRS?

[mbozek]

The failure to permit universal salary reduction for eligible employees results in taxation of all deferrals to the 403(B) contracts for all participants for the year in which the violation occurs. Prior and subsequent years deferrals are not affected. In effect the deferrals are transformed into after tax contributions. See 403(B)(1). There is no ADP testing for 403(B) salary deferrals. See thread by Brennan on 12/4 under 403(B) plans for reference to correction procedure for this problem.