Do you have a way to prove universal availability?

More and more school districts are facing consequences because of 403(b) Plan compliance regulations. When it comes to proving that all employees are given the chance to make elective deferrals into their retirement plan each year, employers often don’t have adequate proof.

With respect to elective deferrals, a 403(b) plan must meet the requirements of IRC 403(b)(12)(A)(ii), also known as the Universal Availability rule. Under this rule, if any employee of the employer maintaining the 403(b) may participate, then all employees must be given the opportunity to participate on an annual basis.

Do you have a way to prove universal availability?

If you’re a school district who offers a 403(b) plan, can you prove that every employee has been provided the universal availability notice annually?

Some third-party administrators provide the language to school districts and allow the school district to distribute as desired.

Why It’s Important to Keep Proof

We have seen that the Internal Revenue Service (IRS) is auditing 403(b) Plans. One item the IRS is typically looking for on audit is whether all eligible employees are given equal opportunity to participate on a regular basis. Schools that believe they have complied may have trouble proving that an annual participation notice has been provided to all eligible employees. If audited today, could you provide all your universal availability notices?

Tangee Franco, Executive Strategic Account Manager, sees school districts distribute the required notices in a variety of ways. Most popular, Tangee shares, is either through a letter at the beginning of the year or included in open enrollment packets.

Questions to Ask Yourself About Providing Adequate Notices

Employers should maintain written procedures for distributing eligibility notices. To be prepared in the event of an audit, you should consider these questions:

Do you have a method for providing ongoing notices, including for new hires and substitutes?
Do you have an electronic or physical file of all notices provided, or do you maintain signed notices that you can produce in case of an audit?
Do you have data to show meaningful notice, with an opportunity to defer, was provided to all employees?

Employees who may be excluded from elective deferrals:	Employees who may not be excluded as a class from elective deferrals:
Employees who normally work less than 20 hours per week*	Part-time employee
Students performing services described in IRC 3121(b)(10)*	Temporary employee
Non-resident aliens described in IRC 410(b)(3)(C)	Seasonal employee
Employees who are eligible to make elective deferrals under another 401(k), 403(b) or 457(b) Plan sponsored by the same employer	Substitute Teacher
Employers who will contribute $200 or less annually	Adjunct Professor Collectively bargained employee

*For the less than 20 hours per week exclusion and for the student exclusion, if any employee who falls under one of these exclusions has the right to make elective deferrals, then no employee who falls under such exclusion may be prevented from making elective deferrals.

Provide notice. Provide evidence. Provide proof.

Whether you're using AFPlanServ^® or another third-party administrator, compliance should remain top of mind. To help your plan operate in compliance, we can provide you sample Universal Availability language, give you guidance on how to distribute it, and create a file as evidence on audit. AFPlanServ can also provide Universal Availability notices for every employee, either during your S125 enrollment or during a separate retirement enrollment.

Do you have a way to prove universal availability?

Do you have a way to prove universal availability?

Why It’s Important to Keep Proof

Questions to Ask Yourself About Providing Adequate Notices

Provide notice. Provide evidence. Provide proof.

Related Strategy Articles