Tax-exempt employer maintains a 403(B) plan, no employer contributions, everyone eligible immediately, typical distribution provisions (age 59 1/2, hardship, etc.). Employer has another plan, two years of eligibility, and permits deferrals and matching contributions, with distributions upon separation from service or age 62. In the second plan, if the participants defer 5% they get a match. Less than 5%, no match. The employer says (and its documents say) that this second plan is a 403(B) plan. How can you have two years of eligibility to make deferrals in the second plan? If you make the deferral of 5 percent a one-time election (at the time of first becoming a participant after the two year period), can you argue that you do not have elective deferrals and the two year wait is acceptable? If the second plan excludes all participants in the first 403(B) plan (but only for a two year period), would the two year wait be acceptable? I think that this latter approach would meet the literal reading of 403(B)(12), but not the notice or announcement interpreting eligibility for 403(B).

I don't want to go to the client saying that the second plan is all wrong without being certain, so your advice is appreciated.

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jpb

Hmm. If participants can make the maximum amount of 403(B) deferrals in the first (no match) plan, couldn't the two plans be aggregated to meet the 403(B)(12) requirements?

Read Notice 89-23 Part III. ("Individuals, who are excludable employees (see Part V for definition of
excludable employees), may be excluded in determining whether a 403(B)
annuity plan satisfies this safe harbor."); Notice 89-23 Part V.B.3.d.(ii) ("employees who are eligible to participate in . . . another 403(B) annuity plan sponsored or maintained by the employer which provides for contributions pursuant to a salary reduction agreement"); and Notice 96-64 Part VI. ("As provided in Announcement 95-48, until further guidance is issued, employers maintaining 403(B) plans may continue to rely on Notice 89-23.")