minimum deferral requirement allowed?

[Guest DeePA]

We ran into a 403(b) plan that only allows employees to participate if they defer a minimum of 4%. This seems discriminatory to me and i've never heard of such a thing.

I realize you can have negative elections, but in the case above if someone is negatively elected to 4% and then wants to reduce to 3%, the plan would not allow this.

Any comments?? (should i run from this one and fast??!!)

Thanks

[Harwood]

Put your running shoes away. I've seen a 403(b) plan with a similar requirement. It appears to be quite legitimate.

[mbozek]

A plan cannot require that employees contribute a minimum percentage of pay. IRC 403(b)(12) requires that all eligible employees must be permitted to make pre tax contributions of more than $200 by salary reduction if any employee can make salary reduction. A plan cannot impose eligibility requirements such as age or a year of service. The IRS Audit guidelines for 403(b) plans states that generally this requires universal eligibility. Plan can exclude union employees, students exempt from FICA and non resident aliens with no U.S. Income. Illegally excluding employees and/or requiring a minimum contribution in excess of $200 is a common mistake discovered in IRS audits.