Reg. § 1.403(b)-5 Nondiscrimination rules.
(a) Nondiscrimination rules for contributions other than section 403(b) elective deferrals
(1) General rule Under section , employer contributions and after-tax employee contributions to a section plan must satisfy all of the following requirements (the nondiscrimination requirements) in the same manner as a qualified plan under section :
(i) Section (relating to nondiscrimination in contributions and benefits), taking section into account.
(ii) Section (limiting the amount of compensation that can be taken into account).
(iii) Section (relating to matching and after-tax employee contributions).
(iv) Section (relating to minimum coverage).
(2) Nonapplication to section 403(b) elective deferrals The requirements of this do not apply to section elective deferrals.
(3) Compensation for testing Except as may otherwise be specifically permitted under the provisions referenced in of this section, compliance with those provisions is tested using compensation as defined in section (and without regard to section ). In addition, for purposes of of this section, there may be excluded employees who are permitted to be excluded under and of this section. However, as provided in of this section, the exclusion of any employee listed in or of this section is subject to the conditions applicable under section .
(4) Employer aggregation rules See regulations under section , (c), (m), and (o) for rules treating entities as a single employer for purposes of the nondiscrimination requirements.
(5) Special rules for governmental plans , , and of this section do not apply to a governmental plan as defined in section (but contributions to a governmental plan must comply with and of this section).
(b) Universal availability required for section 403(b) elective deferrals
(1) General rule Under section , all employees of the eligible employer must be permitted to have section elective deferrals contributed on their behalf if any employee of the eligible employer may elect to have the organization make section elective deferrals. Further, the employee's right to make elective deferrals also includes the right to designate section elective deferrals as designated Roth contributions.
(2) Effective opportunity required For purposes of of this section, an employee is not treated as being permitted to have section elective deferrals contributed on the employee's behalf unless the employee is provided an effective opportunity that satisfies the requirements of this . 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 plan satisfies the effective opportunity requirement of this 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 (as defined at ) between cash or a contribution to the plan. Further, an effective opportunity includes the right to have section elective deferrals made on his or her behalf up to the lesser of the applicable limits in (including any permissible catch-up elective deferrals under and ) or the applicable limits under the contract with the largest limitation, and applies to part-time employees as well as full-time employees. An effective opportunity is not considered to exist if there are any other rights or benefits (other than rights or benefits listed in , , or ) that are conditioned (directly or indirectly) upon a participant making or failing to make a cash or deferred election with respect to a contribution to a section contract.
(3) Special rules
(i) In the case of a section plan that covers the employees of more than one section organization, the universal availability requirement of this applies separately to each common law entity (that is, applies separately to each section organization). In the case of a section plan that covers the employees of more than one State entity, this requirement applies separately to each entity that is not part of a common payroll. An eligible employer may condition the employee's right to have section elective deferrals made on his or her behalf on the employee electing a section elective deferral of more than $200 for a year.
(ii) For purposes of this , an employer that historically has treated one or more of its various geographically distinct units as separate for employee benefit purposes may treat each unit as a separate organization if the unit is operated independently on a day-to-day basis. Units are not geographically distinct if such units are located within the same Standard Metropolitan Statistical Area (SMSA).
(4) Exclusions
(i) Exclusions for special types of employees A plan does not fail to satisfy the universal availability requirement of this merely because it excludes one or more of the types of employees listed in of this section. However, the exclusion of any employee listed in or of this section is subject to the conditions applicable under section . Thus, if any employee listed in of this section has the right to have section elective deferrals made on his or her behalf, then no employee listed in that of this section may be excluded under this and, if any employee listed in of this section has the right to have section elective deferrals made on his or her behalf, then no employee listed in that of this section may be excluded under this .
(ii) List of special types of excludible employees The following types of employees are listed in this :
(A) Employees who are eligible under another section plan, or a section eligible governmental plan, of the employer which permits an amount to be contributed or deferred at the election of the employee.
(B) Employees who are eligible to make a cash or deferred election (as defined at ) under a section plan of the employer.
(C) Employees who are non-resident aliens described in section .
(D) Subject to the conditions applicable under section (including section permitting separate testing for employees not meeting minimum age and service requirements), employees who are students performing services described in section .
(E) Subject to the conditions applicable under section , employees who normally work fewer than 20 hours per week (or such lower number of hours per week as may be set forth in the plan).
(iii) Special rules
(A) A section plan is permitted to take into account coverage under another plan, as permitted in and of this section, only if the rights to make elective deferrals with respect to that coverage would satisfy and of this section if that coverage were provided under the section plan.
(B) For purposes of of this section, an employee normally works fewer than 20 hours per week if and only if—
(1) For the 12-month period beginning on the date the employee's employment commenced, the employer reasonably expects the employee to work fewer than 1,000 hours of service (as defined in section ) in such period; and
(2) For each plan year ending after the close of the 12-month period beginning on the date the employee's employment commenced (or, if the plan so provides, each subsequent 12-month period), the employee worked fewer than 1,000 hours of service in the preceding 12-month period. (See, however, section 202(a)(1) of the Employee Retirement Income Security Act of 1974 (ERISA) (88 Stat. 829) Public Law 93-406, and regulations under section of the Internal Revenue Code applicable with respect to plans that are subject to title I of ERISA.)
(c) Plan required Contributions to an annuity contract do not satisfy the requirements of this section unless the contributions are made pursuant to a plan, as defined in , and the terms of the plan satisfy this section.
(d) Church plans exception This section does not apply to a section contract purchased by a church (as defined in ).
(e) Other rules This section only reflects requirements of the Internal Revenue Code applicable for purposes of section and does not include other requirements. Specifically, this section does not reflect the requirements of ERISA that may apply with respect to section arrangements, such as the vesting requirements at 29 U.S.C. 1053.
[T.D. 9340, 72 FR 41144, July 26, 2007]