403(b) - 410(b) coverage

[401Kerfuffle]

A 403(b) plan with universal availability for elective deferrals. The plan uses the excludable classification of employees who work less than 20 hrs/wk.

Does the excludable class of employees get counted in a 410(b) coverage test for elective deferrals?

 

[Kevin C]

Section 410(b) doesn't apply to 403(b) deferrals. It does apply to other types of contributions in a 403(b) plan.   If it is not a Church plan, the universal availability requirement of 1.403(b)-5(b) applies to 403(b) deferrals.
 

Quote

 

1.403(b)-5(a) Nondiscrimination rules for contributions other than section 403(b) elective deferrals—(1) General rule. Under section 403(b)(12)(A)(i), employer contributions and after-tax employee contributions to a section 403(b) plan must satisfy all of the following requirements (the nondiscrimination requirements) in the same manner as a qualified plan under section 401(a):

(i) Section 401(a)(4) (relating to nondiscrimination in contributions and benefits), taking section 401(a)(5) into account.

(ii) Section 401(a)(17) (limiting the amount of compensation that can be taken into account).

(iii) Section 401(m) (relating to matching and after-tax employee contributions).

(iv) Section 410(b) (relating to minimum coverage).

(2) Nonapplication to section 403(b) elective deferrals. The requirements of this paragraph (a) do not apply to section 403(b) elective deferrals.

 

Even with the recent IRS guidance on once in - always in for the < 20 hours per week exclusion, we recommend against using it.  A single mistake can result in expensive retroactive corrections because of the all or nothing rule that applies.

[Belgarath]

14 hours ago, Kevin C said:

Even with the recent IRS guidance on once in - always in for the < 20 hours per week exclusion, we recommend against using it.  A single mistake can result in expensive retroactive corrections because of the all or nothing rule that applies.

What Kevin said!! We have a few "legacy" plans that still use it, and it is a nightmare for compliance, particularly since the clients who tend to use it also tend to be less than stellar in the human resources arena...

[401Kerfuffle]

I'm revisiting the <20 hours exclusion for a non-church 403(b). Here's the scenario: 

Participant hired in 2010. At that time the document had no <20 hours exclusion. The participant was eligible and deferring.

In 2016 the <20 hour exclusion was added. 

The participant has never worked >20 hours or >1000 hours per year.

The document states the following:

"NOTE: An Employee normally works fewer than 20 hours per week if, for the 12-month period beginning on the date the Employee's
employment commenced, the Employer reasonably expects the Employee to work fewer than 1,000 hours of service (as defined under section
410(a)(3)(C) of the Code) in such period, and, for each Plan Year ending after the close of that 12-month period, the Employee has worked
fewer than 1,000 hours of service in the preceding 12- month period. Under this provision, an Employee who works 1,000 or more hours of
service in the 12-month period beginning on the date the Employee's employment commenced or in a Plan Year ending after the close of that
12- month period shall then be eligible to participate in the Plan. Once an Employee becomes eligible to have Elective Deferrals made on his
or her behalf under the Plan under this standard, the Employee cannot be excluded from eligibility to have Elective Deferrals made on his or
her behalf in any later year under this standard."

I'm stumbling on "this standard". Is the document referring to the 1000 hour rule as "this standard"? If so, I'm thinking the participant should have been reclassified in 2016 as an excludable employee because she didn't meet the "standard".....and deferrals should have stopped.

What is your interpretation?