403(b) Employer Contribution

[MBCarey]

We have a 403(b) (hospital) plan that has consisted totally of employee deferrals up to now. They would like to change that and start to make an employer profit sharing contribution of 1 1/2%. Eligible employees would receive this regardless of whether they were contributing or not.

Currently there are two entry dates 1/1 and 7/1 after a year of service (1,000 hours). Once an employee becomes eligible to be in the plan, can there still be a 1,000 hour per plan year requirement to receive the employer contribution. Some of these employees are part time and even though they meet initial eligibility rules, may not consistently have 1,000 each year.

Guess my question is can they be excluded from receiving a ER contribution if they do not complete 1,000 hours.

[mbozek]

If the only contributions are by employee salary reduction why is is there a 1000 Hour of service requirement? Under IRC 403(b)(12) a salary reduction plan must be made available to any employee who normally works 20 or more hours a week (other than students) There is no requirement that the employee perform 1000 hrs of service. The 1000 hr of service rules applies only to employer contributions to the plan.

[Everett Moreland]

Yes, employees can be excluded from the ermployer contribution if they do not have 1000 HOS.

Consider making the employer contributions under a separate plan, to avoid subjecting the employee contributions to ERISA.