403b NEC accrual requirement

[Earl]

I have a 403b plan that has adopted an amendment to the accrual requirements. It used to say 1,000 hours required but they were funding pay to pay. I pointed out that was a conflict. Their attorney amended the plan so that "for the contribution for any pay period the Participant has an official work schedule of at least 20 hours a week for that pay period."

Disregarding the fact that it became an individually designed plan, how would this be tested?

There were about 4 (of 150 participants) whose schedule changed mid-year. So they stopped getting a contribution at that point (saving the ER about $0.75, but I digress). So for 410b they are in the numerator and denominator and coverage is 100%. Can't be that easy.

The contribution is a hard wired 7.5% of pay.

Would it become non-uniform allocation rates and must be 401(a)(4) tested for non-discrimination? Or maybe it is a Benefit/Right/Feature so I would NDC test it?

Thanks!

[ETA Consulting LLC]

Earl,

You make an interesting observation. First, I belive all 403(b) plans are, in fact, individually designed as the IRS hasn't issued any opinion, determination, or advisory letters. I think it will ultimately happen, but for now the requirement is that the plan merely be written.

But, to your main point, any allocation that effectively requires an individual work more than 1000 hours a year to receive (in this case 1040 hours), would appear to violate some provisions of ERISA (the specific ones would have to be researched). Is the employer a non-profit subject to ERISA? I agree that there are issues here, but the emphasis should be placed on defining 'exactly' what those issues are; it may not get to how it is to be tested.

Good Luck!

[Earl]

Good point about the 1,000 hours (and the IDP issue - and EPCRS says open to 403b plans for certain issues so not sure how that works) although I am not sure someone could work 1,000 hours without having 20 hours in at least one week of the year. So they would get a contribution for that week and would be benefiting.

Although this goofball amendment actually says "official schedule of at least 20 hours a week" so someone working an official schedule of 19 hrs a week (19 x 52 = 988) but getting 12 hours of overtime during the year have 1,000 hours and would not get a contribution. So that would be a violation. I think they have a new attorney so I will put this in my testing letter and hope someone pays attention. Thanks for your comments on this.

And since I am new to 403bs, since this is a company contribution wouldn't have to be a plan subject to ERISA?

[ETA Consulting LLC]

Oh, since you're new we can go break it down a little further:

We would typically look at each type of contribution (deferral, employer, rollover) as having their own attributes. For employee deferrals, there is a universal eligibility requirement that allows the employer to impose a restriction on the employee's eligibility to defer. One major restriction allowed is that the employee is "expected" to work 20 or more hours per week.

Employer contributions (e.g. nonelective) have different standards. Those standards appear irrespective of whether the nonelective is being made to a 403(b) or Profit Sharing portion of a 401(k) plan. My contention would be that there is no precendent to effective require an employee to have to work at a rate translating to more than 1000 hours per year in order to receive an employer contribution.

Good Luck!