Limiting employer contributions

[Guest JMN]

Is it possible for a 403(b) plan sponsor to not make matching contributions for employees in a particular job classification? In a qualified plan, I think this can be done by defining compensation for purposes of matching contributions as excluding amounts earned in an ineligible job category, provided that it satisfies the nondiscrimination testing. Is the same possible for 403(b) plans?

[ETA Consulting LLC]

Sure you can. You would ensure the formula (and who receives it) is clearly defined and also that the necessary non-discrimination tests are performed each year.

Good Luck!

[Guest Salvador A Mander]

Sure you can. You would ensure the formula (and who receives it) is clearly defined and also that the necessary non-discrimination tests are performed each year.

Good Luck!

Do you read the definition of compensation in 1.401(m)-5 as allowing compensation earned in such a job classification to be excluded from the denominator of an ACR calculation? The definition includes a statement that a plan may limit the period taken into account to the portion of a year in which the employee was an eligible employee (defined as an employee who is directly or indirectly eligible to receive a match for all or a portion of a plan year). Thanks for any thoughts!

[ETA Consulting LLC]

It really has nothing to do with the definition of compensation. It's clearly an issue of defining the group of employees who are eligible to receive this type of contribution. This is a coverage issue and tested under 410(b). The reason you don't have that on the deferral portion is that 403(b) is subject to the universal eligibility rules (employees expected tow work 20 hours per week, with a few exceptions). Employer contributions is totally up to the employer (this is how much and this is who receives it). Once you pass 410(b) and ACP, then you're golden.

Now, when you are testing under ACP, then the definition of compensation used must be non-discriminatory. This opens the door to exclusions (where you don't have to use compensation during the entire 12 month period; especially when the participant wasn't eligible for the entire 12 months.)

Good Luck!

[Guest Salvador A Mander]

Now, when you are testing under ACP, then the definition of compensation used must be non-discriminatory. This opens the door to exclusions (where you don't have to use compensation during the entire 12 month period; especially when the participant wasn't eligible for the entire 12 months.)

Good Luck!

Thank you! We're looking at the coverage issue for the disaggregated match component, but assuming that coverage is sufficiently broad, we want to get a handle on how to run the ACP test for employees who are eligible for the match with respect to most, but not all, of the plan year. (For part of the year, they are in working in a specific division that does not participate in the match). I read 1.401(m)-5 and 1.401(m)-2 as permitting the exclusion of compensation earned as an ineligible employee (even if they are eligible to make an elective deferral under the universal availability rule), provided the use of an otherwise valid 414(s) definition. Does this sound correct or am I missing something?

[ETA Consulting LLC]

That sounds correct. You're simply using compensation for the (match) eligible period only; which has nothing to do with the deferral eligibility period (for testing purposes). You are including all employees who were eligible to receive a match (even if they didn't defer), during any part of the year. You're just looking at not testing the entire year of compensation (which could lower the percentages in the test).

Good Luck!

[Guest Salvador A Mander]

Thanks again. We would obviously want to keep the compensation denominator as low as possible to maximize the ACP for the NHCEs who spend some time working for the other division. I think we still have effectively different match rates subject to BRF testing, but do not believe it will be very significant.