Universal Availability

[austin3515]

So someone just blew my mind. Is it true that if 2 501c3's are under common control (in fact in my case, it's a parent subsidiary situation) that you do not have to have both organizations covered by the plan? In other words, universal availability applies only to each entity completely independently?

Would just regular coverage apply, or does that even apply?

[Peter Gulia]

Before thinking about how the universal-availability and coverage rules apply, how confident are you that the two charitable organizations really are under common control? Because charities don't have stock or ownership rights to look to in evaluating control, the section 1.414©-5 regulations look to whether 80% of the governing body of an organization are "representatives of" the other organization.

[austin3515]

The 2nd entity is a subsidiary.

[PensionPro]

The IRS has clarified that UA applies to each common law entity separately rather than grouping controlled groups together. However you do consider controlled groups for other purposes such as 415(c ), 401(a)(9), HCE determination, 15-year catch-up.

[Flyboyjohn]

Thanks Pension Pro, do you have a cite?

[austin3515]

I spoke with Corbel and they said the only nondiscrimination/coverage requirements that apply to 403b is universal availability, and that is applied to each entity separately. So you can have all your HCE;s in entity 1 covered by a 403b and all your NHCE's in entity 2 with no 403b and that would not be a problem. Of course I assume each entity has to employ it's own true employees so I'm sure if this outcome was arbitrary each individual entity would be jeopardizing its TE status. In other words your entity structure presumably has to be tied to operations.

[PensionPro]

Assuming you are only talking about employee elective deferrals?

[austin3515]

yes, my post could have been more clear on that point. Just ED's.

It occurred to me that why I am so surprised by this fact is because the darn thing is referred to as "UNIVERSAL availability." Talk about a misnomer. It should have been called "galaxy cluster" availability.

[Carol V. Calhoun]

IRS confirms that "Universal availability ... applies to each common-law entity separately rather than grouping controlled groups together."

[Belgarath]

If you want a citation, see 1.403(b)-5(b)(3)(i).

I don't have any experience actually using this - seems like it could be a pain ignoring the CG for this purpose yet having to pass nondiscrimination on an overall basis. But I suppose if you had deferral only plan, or maybe in the right census situation, it could be useful. Hopefully I'll never have to deal with it!