(b)lines Ask the Experts – Nondiscrimination Testing Required for 403(b)s

What types of nondiscrimination tests are required for 403(b) plans? For example, is a top-heavy test required?”

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

Top-heavy testing under Code Section 416, as well as minimum participation testing under 401(a)(26) and average deferral percentage (ADP) testing under 401(k),  are not required for 403(b) plans, but the degree to which other nondiscrimination testing is required will vary by the type of sponsoring entity.                

For example, 403(b) plans of 3121(w) “steeple” churches or qualified church-controlled organizations (QCCOs) are not subject to ANY nondiscrimination testing. 403(b) plans sponsored by governmental entities are generally exempt from nondiscrimination testing, with the exception of the universal availability requirement under Code section 403(b)(12) as well as the compensation limit under 401(a)(17). However, 403(b) plans sponsored by other entities are generally subject to the following tests:

1)         401(a)(4) testing of contributions and benefits;

2)         401(a)(17) compensation limit;

3)         401(m) average contribution percentage (ACP) testing for matching contributions;

4)         410(b) coverage testing (note non-3121(w) church/QCCO plans must satisfy special pre-Employee Retirement Income Security Act (ERISA) coverage testing under 401(a)(3), and not 410(b) coverage testing); and

5)         403(b)(12) universal availability of elective deferrals.


It should be noted that these entities are also subject to the special rules under 401(a)(5). Finally, it should also be noted that a “good faith” standard applies to non-3121(w) church/QCCO plans, since the final regulations are technically not effective for such plans as yet.

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.