(b)lines Ask the Experts – Deferral Amount Requirement for 403(b) Participation

July 1, 2014 (PLANSPONSOR (b)lines) – “I realize the Experts addressed the issue of 403(b) participants who must be counted for Form 5500 purposes in a previous Ask the Experts column.

“Generally all current employees must be counted since, with the exception of some limited groups of employees who could be excluded, all are eligible to make elective deferrals to the plan, whether or not they actually defer (see “Ask the Experts – Who Counts as a Participant?”).  

“But, what about the requirement that an employee defer more than $200 per year in order to participate in a 403(b) plan? Could a plan sponsor simply add this provision to its 403(b) plan and thus be able to exclude all employees from the 5500 count as “ineligible” that fail to make elective deferrals? This would likely result in many additional plans qualifying as small (fewer than 100 participants)—plans that could thus avoid the audit requirement for large plans.”  

Michael A. Webb, vice president, Cammack Retirement Group, answers:

Indeed the provision for conditioning 403(b) voluntary plan participation on the ability to defer more than $200 per year still exists; it is clearly stated in section 1.403(b)-5(b)(3). Thus, a plan sponsor, if it so desires, can include this provision in its plan. However, the provision is NOT an eligibility provision; it is merely designed to prohibit otherwise eligible employees from deferring nuisance amounts (e.g. $1 per paycheck) to the plan each year.

The classes of employees that may be excluded from the otherwise universal availability provisions are contained in a separate section of the regulations, 1.403(b)-5(b)(4)(ii), as follows:

(A) Employees who are eligible under another section 403(b) plan, or a section 457(b) 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 §1.401(k)-1(a)(3)) under a section 401(k) plan of the employer;

(C) Employees who are non-resident aliens described in section 410(b)(3)(C);

(D) Subject to the conditions applicable under section 410(b)(4) (including section 410(b)(4)(B) permitting separate testing for employees not meeting minimum age and service requirements), employees who are students performing services described in section 3121(b)(10); and

(E) Subject to the conditions applicable under section 410(b)(4), 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).


These are the ONLY classifications of current employees that may be excluded from the right to make elective deferrals. If such classifications are excluded, employees included in these classifications need not be counted for Form 5500/audit purposes. Otherwise, the amount of an employee’s elective deferral has no impact as to whether he/she is counted as a participant.

Thank you for your question!


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.