403b Compliance Isn’t Universal

July 31, 2012

The IRS Employee Plans Compliance Unit is conducting a survey of colleges and universities to assess their compliance with the universal availability rule for 403b plans. This rule says that with limited exceptions, all employees must be eligible to participate when such a plan is offered. Interim results of the survey indicate that many of these institutions fail to comply with the rule, excluding certain categories such as administrative employees or adjunct faculty. While certain exclusions are permitted (such as employees normally working fewer than 20 hours per week and certain student employees), employers offering these plans are not permitted to impose other restrictions on participation.

This rule is a condition for qualification of the plan, so correction of the problem will be mandatory. In some cases employers may be required as part of the correction process to make plan contributions for employees who were improperly excluded.