403(b) participant not allowed to defer

[kwalified]

an 8 participant 403(b) has not been following the plans eligibility rules for several years. plan doc has no service/age requirement, so immediate eligibility. However, sponsor has been making participants wait for one year to enter the plan on a uniform and non discriminatory basis. I understand this is a VCP case and they are aware of it. My question is....would you think the IRS/DOL would allow the sponsor to go back and amend retroactively to install the eligibility(1 YOS) they were actually using OR is it more likely that they will have to go back and make up the 6% employer contribution to all employees they had excluded? The plan has an effective date of 7/1/05. Sponsor has been contributing 6% irregardless of whether the participant actually deferred since plan inception.

Thanks a heap!

[ETA Consulting LLC]

No. The reason the plan has no eligibility for the deferral portion is because eligibility requirements are not allowed. 403(b) plans are subject to universal availability rules (with very few exceptions). There is no 6 month or 1 year option that you'll see in 401(k) plans.

Good Luck!

[kwalified]

What about on the employer side?

[ETA Consulting LLC]

Different story. When dealing with 403(b) plans, or any plans for that matter, you must remain mindful that different rules apply to different sources of money. The universal availability rules I mentioned applies to the employee deferrals only. The employer side may be eligibility requirements (i.e. 21 years of age and 1 year of service).

Good Luck!

[kwalified]

Different story. When dealing with 403(b) plans, or any plans for that matter, you must remain mindful that different rules apply to different sources of money. The universal availability rules I mentioned applies to the employee deferrals only. The employer side may be eligibility requirements (i.e. 21 years of age and 1 year of service).

Good Luck!

I understand that and thanks for your replies. Basically they will have to go back and either contribute the 6% employer in accordance with how the plan was initially written or do you think that they could argue that while the plan was not operating in accordance with its terms, it was operating uniformly and non-discrim and therefore should be allowed to retroactively amend to mirror how the plan was actually being operated? Therefore saving the sponsor additional funding.