Are 403(b) plans subject to 401(a)(26)?

[MWeddell]

Code Section 401(a)(26), which required that qualified plans cover the lesser of 40% of an employer's workforce or 50 employees, since the plan year beginning in 1997 doesn't apply to defined contribution plans. However, there's still a cross-reference to 401(a)(26) in Code Section 403(B)(12).

Normally, I'd say that 401(a)(26) doesn't apply to the nonelective deferral portion of a 403(B) plan either because it's not a defined benefit plan. However, the IRS audit guidelines that were updated this summer still refer to 401(a)(26) rules, not that they elaborate at all.

Does this mean that the IRS thinks that the nonelective deferral portion of a 403(B) is still subject to the 50 employee / 40% rule? Has anyone already spoken to the IRS about this?

[Carol V. Calhoun]

My own understanding of this is that the language in the 403(B) Examination Guidelines concerning 401(a)(26) was intended to refer to defined benefit 403(B) plans. Of course, such plans are extremely rare, which is probably why the guidelines did not discuss this issue in detail. But I would agree with you that since 403(B)(12) is an attempt to make the nondiscrimination rules consistent between employer contribution 401(a) and 403(B) plans, it would not make sense to apply 401(a)(26) to a defined contribution 403(B) plan.

Anyone have more definitive word on this?

------------------------------------

Employee benefits legal resource site