Minimum Participation Standards

[Guest Serena]

A 403(b) plan is established by a county hospital, which is a dual status entity because it is a 501©(3) entity and also a governmental entity. The question is can they impose a 5 year eligibility requirement on the employer contributions? At first I thought not, but per the regs below, it appears that the minimum participation standards of the Code do not apply to governmental entities?

Any thoughts??

410© APPLICATION OF PARTICIPATION STANDARDS TO CERTAIN PLANS. --

410©(1) The provisions of this section (other than paragraph (2) of this subsection) shall not apply to --

410©(1)(A) a governmental plan (within the meaning of section 414(d)),

[mbozek]

A 403(b) plan is established by a county hospital, which is a dual status entity because it is a 501©(3) entity and also a governmental entity. The question is can they impose a 5 year eligibility requirement on the employer contributions? At first I thought not, but per the regs below, it appears that the minimum participation standards of the Code do not apply to governmental entities?

Any thoughts??

410© APPLICATION OF PARTICIPATION STANDARDS TO CERTAIN PLANS. --

410©(1) The provisions of this section (other than paragraph (2) of this subsection) shall not apply to --

410©(1)(A) a governmental plan (within the meaning of section 414(d)),

Under 403(b)(12)(d) 403b plans sponsored by governmental entities are exempt from all of the eligibility requirements under IRC 410(b). Governmental plans are not exempt universal availability under 403(b)

ERISA Section 201 exempts government 403b plans from the eligibility reqirements identical to IRC 410(a).

[Guest Serena]

Thanks, I saw it in the Code. I just have never seen a plan with 5 year of service for eligibility. Kind of hard to believe!

[oldman]

Good commentary on this subject by assetinternational.com:

No, if the plan is a governmental plan. Section 410(a) does not apply to 403(b) plans, only qualified plans such as 401(a) plans. However, there is a similar section of ERISA (202(a)) that applies to ALL ERISA plans, whether qualified or 403(b). Thus, 403(b) ERISA plans are generally restricted to a one-year waiting period and an age requirement of 21 in order to be eligible for employer contributions, or two years if 100% immediately vested in employer contributions as you describe. There is also a more obscure exception that extends the age requirement to age 26, but only for educational institutions where vesting for employer contributions is 100% immediate, though in this case the service requirement cannot be extended to two years.

But none of these restrictions apply to governmental or non-electing church plans, since the are not subject to ERISA and neither ERISA Section 202(a) nor Code Section 401(a) applies to them. Thus, the five-year waiting period for employer contribution in your example is an acceptable plan provision. You should keep in mind, however, that the universal availability requirement of 403(b) applies to all ELECTIVE deferrals in governmental plans, so eligibility to make an elective deferral is immediate for all employees, with limited exceptions.