Universal Availability

[Guest rcole]

We are a community human services agency that offers a 403(b) plan to our employees for their voluntary salary deferrals. As part of our operation we have a sheltered workshop that has about 60 adults with disabilities who work five hours per day, five days per week. They earn paychecks and we issue W2's and have to cover them with Workers Comp insurance. They are paid on a sub-minimum basis that is regulated by DOL rules. The question I have is whether the Universal Availability requirements mean that they too must be included in any effective communication about the plan? They don't really fit any of the specific exclusion categories (they work more thatn 1,000 hours per year and are not students etc). It is extremely unlikely that any would choose to want to participate and that they would not be contributing $200 or more into the plan per year so they could be kept out from participating. But I would not want to have to include them in any communication about the availability of the plan if it can be avoided. Most are not competent and have guardians and so forth and they would be confused over why we are approaching them in the first place.

Any thoughts on this?

[Kevin C]

If they don't fit into any of the allowed exclusion categories, they must be allowed to contribute. If you don't give this group any communications about the plan, I think you have a problem with effective availability of the deferrals (see 1.403(b)-5(b)(2)). We had a recent IRS audit of a client's 403(b) plan where the agent said that anyone who was eligible but did not receive the enrollment package was improperly excluded from the plan.

And, don't forget the all or nothing rule now in effect for the statutory exclusions. See 1.403(b)-5(b)(4). If they make a mistake and let one person defer who could be excluded under one of the stautory exclusion, they lose the ability to use that exclusion. You did not mention if this was an ERISA covered plan. It appears that an ERISA covered plan can not use the <20 hour per week exclusion.

For those that are not competent and have guardians, I would expect the paperwork to go the guardian.

[rcline46]

For 401(a) plans, there is a specific rule for these 'clients'. They are actually not 'employees'. Right now I don't remember where I dug it up, but it is in the regulations. I would think it would apply to 403(b) plans also. It does not matter that they get a W-2, if you collect Social Security from their checks, or anything else.

Check the definition of 'employee' in the code and regs.