Last week, the IRS released Notice 2018-95 to provide transition relief to 403(b) plans that improperly excluded certain employees. Specifically, Notice 2018-95 targets employers that may have erroneously excluded part-time employees from eligibility to make elective deferral when the employees should have been eligible to participate under the “once-in-always-in” requirement (“OIAI”). According to the OIAI requirement, once an employee becomes eligible to make elective deferrals, an employer may not exclude the employee from eligibility in any later year on the basis that the employee does not work sufficient hours to participate. Notice 2018-95 consequently provides transition relief for employers that sponsored 403(b) plans and did properly follow the OIAI requirement applied to their part-time employees.
For plans that did not properly apply the OIAI requirement, Notice 2018-95 establishes relief regarding plan operations and plan language, as well as a “fresh-start opportunity.” Notice 2018-95 also makes it clear that if a 403(b) plan excludes part-time employees for purposes of making elective deferrals, the plan must explicitly include the OIAI requirement in the plan document prior to April 1, 2020, which may require many 403(b) plans to be amended.
Employers sponsoring 403(b) plans that exclude part-time employees for purposes of elective deferral eligibility should carefully consider how the OIAI requirement affects their plans and whether any changes will be necessary to either their procedures or plan documents.
We have provided more detailed information regarding the relief offered under Notice 2018-95 on our Employee Benefits & Executive Compensation Blog, available at the following link:
IRS Announces Transition Relief From The Once-In-Always-In Requirement For Excluding Part-Time Employees Under 403(b) Plans