The IRS on December 4 released Notice 2018-95, which provides transition relief to tax-exempt 403(b) plan sponsors that may not have complied with the “universal availability” rule for part-time employees.
Background on Universal Availability Rule. Code Section 403(b) contains a “universal availability” eligibility rule, which generally provides that all of a tax-exempt employer’s employees must be eligible to make elective deferrals to the employer’s 403(b) plan. This rule only applies to employee elective deferrals and does not require that a tax-exempt employer make employer non-elective or matching contributions available to all employees. There are limited exceptions to the universal availability rule such that an employer can still exclude certain groups of employees from the opportunity to make elective deferrals – including non-resident aliens, students, and employees who normally work fewer than 20 hours per week. However, the exclusions must be applied consistently and to all similarly situated employees. So, for example, if one or more part-time employees who work fewer than 20 hours per week are permitted to make employee elective deferrals, then all similarly situated part-time employees must be given the same opportunity.