If you sponsor a 403(b) plan for your employees, you must satisfy the “universal availability” requirement as established by the IRS. According to IRS.gov, all employees of the employer must be eligible to make elective deferrals if any employee has the right to do so, with certain limited exceptions. Certain part-time employees may be excluded from eligibility to make elective deferrals.

The IRS also requires that any employer sponsoring a 403(b) plan must notify all eligible employees of this benefit at least once annually. In doing so, you are providing an “effective opportunity” for eligible employees to participate in the plan.

Top Three Ways to Notify Your Employees

Your plan administrator may provide communication templates you can personalize and distribute to your employees to make the notification process simpler. There are 3 methods by which you can distribute the notices:

  1. Mail. If choosing this method, be sure to retain the list of addresses used and the postage receipt.
  2. Hand Delivery. Prepare a list of employee names and have each employee sign their name to acknowledge receipt.
  3. Email. Strict guidelines must be followed for electronic delivery, but email is permitted.

If you choose to email the Universal Availability notices, this method is recommended in addition to mailing or hand delivery, not instead of. It should not be assumed that all recipients have access to a computer.

IRS Distribution Guidelines

The IRS has indicated they are auditing an increasing number of 403(b) plans, particularly in regards to Universal Availability compliance. An employer found to be non-compliant may have to make contributions to the plan on behalf of any eligible employees who did not receive proper notice. According to the IRS, compliance must be shown on a “facts and circumstances” basis. Treas. Reg. Section 1.403(b)-5(b)(2) stipulates that:

“…An employee is not treated as being permitted to have section 403(b) elective deferrals contributed on the employee’s behalf unless the employee is provided an effective opportunity….Whether an employee has an effective opportunity is determined based on all the relevant facts and circumstances, including notice of the availability of the election, the period of time during which an election may be made, and any other conditions on elections. A section 403(b) plan satisfies the effective opportunity requirement only if, at least once during each plan year, the plan provides an employee with an effective opportunity to make (or change) a cash or deferred election between cash or a contribution to the plan….”

Although the IRS has not provided distribution guidelines specific to 403(b) plans, the “best practice” is to follow the clearer IRS and DOL rules that have been developed for other types of retirement programs. Failure to comply with Universal Availability could disqualify the entire plan, so it’s better to be safe than sorry.

Are you a current MidAmerica client?  You can download Word templates of our Universal Availability notice by clicking on the links below.

Limited Eligibility

For plans which exclude certain employees from participation.

No Exclusions

For plans which allow all employees to contribute.

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