$200 in 403(b) Deferrals

[Guest PGH.ERISA]

A client has a 403(b) plan under which employees can choose to invest contributions with one of two annuity providers. One provider has a minimum deferral requirement of $5.00 per pay period, while the other has a minimum deferral requirement of $10.00 per pay period. Particularly now that the final 403(b) regs say (consistent with Code Section 403(b) itself) that an eligible employer can condition an employee's right to make deferrals upon the employee's election of $200 per year in deferrals, does anyone disagree with the conclusion that an annuity provider can't have a minimum deferral amount per pay period that results in a minimum annual deferral reequirement of more than $200?

[J Simmons]

I think you could have a minimum deferral per pay period that exceeds $200 for the year, provided employees also had the option to stop the deferrals before the end of the year. Suppose it was $50/mo minimum. That would be $600/yr. That's above the $200 floor. However, if the employees had the ability to stop mid-year the elective deferrals, say once the $200 minimum, is met, then I do not think you'd be in violation.

[Guest PGH.ERISA]

I have noticed that in the model 403(b) plan contained in Rev. Proc. 2007-71, the following language appears: "The Administrator may establish an annual minimum deferral amount no higher than $200, and may change such minimum to a lower amount from time to time." This still suggests to me that it is necessary to look at what the employee's current deferral rate would produce as far as an annual deferral amount.

[J Simmons]

Maybe the regulation writers did intend to say that the $200/yr minimum must be levelly amortized over the entire year. But they didn't say that.

[Guest PGH.ERISA]

Maybe the regulation writers did intend to say that the $200/yr minimum must be levelly amortized over the entire year. But they didn't say that.

I spoke to Bob Architect, the IRS 403(b) guru, about this, and he said that the view of the IRS is that the $200 rule won't be satisfied unless there is at least one annuity provider under a 403(b) plan who either has no minimum deferral or whose minimum deferral amount works out to less than $200 per year (i.e., if there are multiple providers, it is okay if some are over the $200 limit, as long as one is not).

[TPApril]

On the $200 contribution or less exclusion - at what point is it determined that an eligible employee working over 20 hours per week but making $0 in 403(b) deferrals can be excluded for 5500 count purposes? Can it be after the end of the plan year? Plan in question has 65 participants with account balances but 200 employees working over 20 hours per week.

[Kevin C]

I think you are misreading 1.403(b)-5(b)(3)(i). It doesn't say those who do not elect to defer at least $200 are excluded from the plan. It just allows the plan to impose a minimum deferral rate of $200 per year for participants who defer. Those who are not deferring are still participants and can defer if they make an election to defer at a rate of more than $200 / year. The types of employees that can be excluded are listed in -5(b)(4).