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When analyzing employer eligibility, several special situations should be considered: Most private employer-sponsored 403(b) plans are subject to the Employee Retirement Income Security Act (ERISA), which has several requirements that parallel rules for qualified defined contribution and qualified defined benefit plans under the Internal Revenue Code, but don’t otherwise directly apply to 403(b) plans, including: So, 403(b) plans that are subject to ERISA must also comply with these rules as well as ERISA’s reporting and disclosure requirements, and—perhaps more significantly—such 403(b) plan sponsors are subject to ERISA’s fiduciary and prohibited transaction rules, unless an exemption applies.
Correction under the IRS EPCRS program (discussed below) can preserve the tax-deferred status of contributions made prior to the discovery of ineligibility.
The employer may initially not permit elective deferrals based on an expectation they will work less than 20 hours per week and will not exceed 1,000 hours for they year (a permissible exception, as noted above).
For example, a school often hires substitute teachers whose work schedule is unpredictable.
The employer must be a state, a political subdivision of a state, or an agency or instrumentality of one of these.
Finally, the universal availability rule prohibits 403(b) plans from making an employee’s right to receive any employee benefit contingent on his or her decision to make an employee elective deferral contribution to the 403(b) plan (other than matching contributions, plan loan benefits relating to a deferral amount, or alternative benefits, credits, or cash under a cafeteria plan available in lieu of the 403(b) plan contribution). §§ 401(a)(4) (nondiscrimination in contributions and benefits), 401(a)(17) (compensation limit), 401(m) (matching and after-tax contributions), and 410(b) (minimum coverage). As an alternative, many employers simply permit all employees, regardless of hours worked, to make elective deferrals. Employers must provide all eligible employees with an annual notice concerning the opportunity to make salary deferrals to a 403(b) plan offering elective deferrals. However, if this is done, the employer needs to carefully track actual hours to ensure that a substitute that ceases to qualify for an exempt category is given the opportunity to participate. There is a notice component to the universal availability rule. Additional guidance on this issue may be found in the I. Adoption of a purported 403(b) plan by an organization not qualified to adopt one is a common violation of the I. For further information on ERISA reporting requirements, see Dep’t of Labor Field Assistance Bulletin 2009-02 (July 20, 2009) and Field Assistance Bulletin 2010-01 (Feb. ERISA fiduciary status may be a particular area of concern in light of recent litigation targeting several university 403(b) plans asserting breaches of fiduciary duty.