What is the “universal availability” under 403(b) plans?
Under the universal availability rule, if an employer permits one employee to defer salary into a 403(b) plan, the employer must extend this offer to all employees of the organization. However, the employer may exclude certain employees from the plan:
- Employees who, in their first year of hire, are not expected to work 1,000 or more hours. In subsequent years, employees can be excluded only if they didn’t work at least 1,000 hours in the previous year. (Caution: if one employee working less than 1,000 hours is permitted to participate, you must permit all employees working less than 1,000 hours to participate.)
- Employees who will contribute less than $200 per year.
- Employees who already participate in another salary deferral plan that you sponsor.
- Employees who are nonresident aliens with no U.S. income.
- Students who perform services for a university as described in IRC section 3121(b)(10).
Employers must take special care to comply with this requirement. Not complying could cause your entire plan to be disqualified. So while you can exclude certain employees, you can avoid possible violation of the universal availability requirement by permitting every common-law employee the right to participate in your plan.
Our data collection procedures are designed to capture employee demographic data needed to ensure compliance with this requirement.
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