“We are considering adding a Roth contribution option; currently we only permit pre-tax elective deferrals. If we add Roth to one 403(b) plan, do we need to add it to all of our 403(b) plans? Or can we pick and choose where to add the feature? Some of our 403(b) plans are smaller and not on our main payroll, so there is a concern as to whether those plans could successfully administer a Roth component.”
Stacey Bradford, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:
Under the final 403(b) plan regulations, the controlled group rules apply for purposes of nondiscrimination testing of employer contributions and after-tax employee contributions but not elective deferrals which are subject to the universal availability rule. (Treasury Regulation Section 1.403(b)-5(a), regarding nondiscrimination testing of employer contributions and employee after-tax contributions, refers in subsection (4) to the controlled group rules, whereas the universal availability rules in Treasury Regulation Section 1.403(b)-5(b) do not.)
As a reminder, the universal availability requirement says that all employees of the organization (or employer) must have the opportunity to elect to have the employer make contributions of more than $200 annually under a salary reduction agreement if any employee of the employer may make such an election, subject to a few narrow exceptions. Roth contributions are subject to the universal availability requirement because they are considered elective deferrals under a salary reduction agreement for purposes of a 403(b) plan. So, although Roth contributions are subject to the universal availability requirement, when testing a plan for the universal availability requirement, you look to the common law entity. Other controlled group entities and their employees are not included in the analysis.
Therefore, each employer in your health care system may choose whether to add Roth contributions. If they do add Roth contributions, those must be available to all employees of that employer under the universal availability rules (subject to the 20 hour and other usual exemptions). The smaller employers may choose not to add Roth contributions if processing them is beyond their payroll capabilities.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@strategic-i.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.
« FiduciaryVest to Use InHub RFP Technology