(b)lines Ask the Experts – Age Restriction for Plan Eligibility

March 6, 2012 (PLANSPONSOR (b)lines) – “I was recently hired by the benefits department of a private university, and was surprised to see that employees are not eligible for employer contributions in our ERISA 403(b) plan until age 26. I thought that the minimum participation requirements of ERISA mandated an age restriction of no greater than age 21? Am I incorrect?”

Michael A. Webb, Vice President, Retirement Practice, Cammack LaRhette Consulting, answers:  

You are indeed incorrect, but the Experts certainly cannot blame you for your lack of knowledge, since this is a rather obscure provision of ERISA that comes into play here!    

Normally, as you accurately state, Section 202(a) of ERISA limits restrictions on the eligibility requirement for employer contributions to eligible classifications of employees that have completed a maximum of one year of service (two years if employer contributions are 100% immediately vested). Thus, under normal circumstances, an employee in an eligible employment classification would NOT be required to wait until age 26 to receive an employer contribution,  as that would violate the age 21/one year eligibility rule.    

However, educational organizations are subject to a special rule under 202(a)(1)(B)(ii) of ERISA, where the age requirement may be extended to age 26. Thus, the reason that employees can be permitted to wait until age 26 in your plan is that the plan sponsor is a private university.    

It should be further noted that, since this is an ERISA rule, none of these maximum waiting periods or age limitations apply to plans that are NOT subject to ERISA, such as government and non-electing church plans, that are free to establish their own waiting periods/age requirements for eligibility without regard to this ERISA rule (See (b)lines Ask the Experts: Eligibility Restrictions for Dual Status Sponsors).    

And finally, these ERISA restrictions only apply to EMPLOYER contribution eligibility, as the IRS’ universal availability requirements prohibit imposing an age restriction or waiting period with respect to the right to make elective deferrals to the plan.   



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.