(b)lines Ask the Experts – Eliminating the Minimum Deferral Requirement

August 26, 2014 (PLANSPONSOR (b)lines) – “I noticed in our 403(b) plan document that there is a minimum annual deferral requirement of $200. Is this required under the 403(b) final regulations?

“My preference would be to eliminate the requirement since it is another administrative item for our staff to monitor. What say you, Experts?”  

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

The Experts applaud you for reading your plan document and identifying quirky provisions such as this one! The $200 limit is an often-overlooked provision of many 403(b) plans (see “Ask the Experts – Deferral Amount Requirement for 403(b) Participation”). This is just one example why all plan sponsors should read their 403(b) plan documents and continuously use them as a source of reference (see “Suggested Reading for New Plan Sponsor Employee”).

The ability to exclude individuals who defer less than $200 annually from the right to make elective deferrals to a 403(b) plan has actually been around for many years. It predates the 403(b) final regulations and, unlike other historic exclusions, survived the 403(b) final regulations, meaning it remains a valid exclusion today.

However, the exclusion is indeed ELECTIVE, not REQUIRED. Thus, you can amend your plan to remove this provision, assuming that you amend your plan operation accordingly to eliminate the $200 per year individual elective deferral requirement. Before you amend your plan, however, you will want to check with your plan vendor(s), since some vendors write this $200 minimum threshold into their contracts as a method of discouraging smaller accounts, which are proportionately more expensive for vendors to administer.

Thank you for your question, and, as a reminder to our other readers, keep those questions coming. Your questions are the reason that there is an Ask the Experts column!


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.