Requirements for “effective opportunity” to make, change or revoke salary reduction elections
While IRS representatives have been stating for years that employers offering 403(b) plans are required to do more than just “make available the opportunity for employees to make salary reduction contributions,” the proposed regulations make this “effective opportunity” a requirement for a plan’s 403(b) status. If this remains a requirement in the final regulations, employers may have to take action to assure and to document that this requirement is met.
What is “effective opportunity”?
The regulations provide that whether an effective opportunity has been provided for employees to make a salary reduction election is a facts-and-circumstances determination. Mentioned in the regulations as factors are:
- notice of the availability of the election,
- the period of time during which an election may be made, and
- any other conditions on elections.
Robert Architect, an IRS senior tax law specialist for Employee Plans, frequently emphasizes the importance of “effective opportunity” at numerous conferences around the country. When the IRS asks an employer whether the employer is adequately informing employees of their ability to make salary reduction contributions, the IRS does not want to hear the response, “Yes, if they come into our HR department, we inform them.” Architect was emphatic that it is not enough to just inform employees of their ability to make salary reduction contributions when they come to the HR department. According to Architect, the IRS would like to see posters (posted in prominent places), payroll stuffers and other items that let the IRS know employees are notified of their ability to make salary reduction contributions.
Steps to take now
You may want to review your employer’s process for keeping employees informed about their ability to start or make changes to salary reduction contributions to the 403(b)(9) Retirement Plan. GuideStone has materials available to help you inform employees about their opportunity to make salary reduction contributions — posters, payroll stuffers and email messages have been created for employers to use for this purpose. Contact your GuideStone relationship manager for more information.
View additional 403(b) Regulation updates and other compliance resources.