Universal Availability

The Issues

All employees must be eligible to participate in the 403(b) plan unless:

• They are eligible to participate in another salary reduction program (like a 457(b) plan or a 401(k) plan)
• They are unwilling to contribute at least $200 per year to the 403(b) plan
• They normally work fewer than 20 hours per week for the employer
• They are students
• They are non-resident aliens

You must notify employees of their eligibility at least once a year.

The Analysis

Eligibility

Current IRS Universal Availability Project
	IRS Expands 403(b) Universal Availability Project
	Overview
	Letter & Questionnaire
	FAQs

These regulations are not new. In fact, the IRS has stepped up its auditing of school districts nationwide for compliance to universal availability. See sidebar

However, what is new is a simplified rule — or "bright-line" test — for determining the 20 hour/week exclusion — the 1,000 hour/year test. You may exclude:

• New employees: On the date of hire, you must reasonably expect this employee will work fewer than 1,000 hours in the upcoming 12-month period
• Current employees: You may exclude employees who have worked fewer than 1,000 hours in the last 12-month period

For example, let's say your organization offers a day camp in the summer and have counselors working 40 hours a week for two months. Clearly they are working more than 20 hours a week. In the past, organizations were concerned that they needed to offer 403(b) to these employees. But, no; they are excluded, using the 1,000 hours/year.

Before the new regulations there was no clear guidance on this. But now the IRS has created a "bright line" with the 1,000 hours/year test that should simplify your burden of determining eligibility.

• Once any employee works more than 1,000 hours, they must be allowed to participate.
• If any employee who works fewer than 1,000 hours participates, all such employees must be allowed to participate.
• The item above is critical because it actually applies to all exclusions: If you allow anyone who could be excluded from participating to participate, then all employees in that category must be allowed to participate.
• Note: Many employers may not wish to use the 1,000/hours rule since it will require tracking actual hours worked and reviewing those records annually. We recommend that you allow all your part-time and full-time employees to participate.

What you can't do:

• Exclude participation by certain classes of employees, such as substitute teachers, bus drivers, janitors, cafeteria workers and nurses
• Set any conditions, such as such as being "benefit eligible" or refraining from health insurance
• Impose a minimum percentage of contributions
• Set minimum age or service requirements to participate

The new regulations add people you can no longer exclude; but this doesn't go into effect until January 1, 2010:

• Employees who make a one-time election to participate in a governmental plan instead of a 403(b)
• Employees covered by a collective bargaining agreement
• Visiting professors for up to a year under certain circumstances
• Employees affiliated with a religious order who have taken a vow of poverty

Meaningful Notice and Election Timing

This regulation also is not new. At least once a year, you must let employees know they are eligible to participate in the 403(b) plan and you must provide details on how they can participate.

Compliance Alert: The new regulations make it clear that if your employees are not made aware of the plan (meaningful notice), the plan can't be considered "available" — even if your employees could have participated if they had asked.

Also you must inform them:

• When and how often they can make or change their contribution, known as "election timing"
• That they have a choice between Roth (post-tax) and regular 403(b) pre-tax elective deferrals (if Roth is available under the plan)
• Of any other conditions that may apply

This "meaningful notice" can be electronic or hard copy.

Failure to Comply

All contracts and accounts under your 403(b) plan could be disqualified if you fail to meet the universal availability

The Lincoln Investment Advantage

• We can help review your plan to ensure it meets the universal eligibility regulations.
• We will provide employee letters for mail/email and notification flyers to distribute to your employees.
• Our financial representatives will assist you in the communication process.