Q. Suppose that you are writing a 403(b) plan for a small 501(c)3 organization. There is only one full-time employee (the director); all others are part-time, but all employees are eligible to participate. There are no highly compensated employees (HCEs). The employer wants to contribute to the director only with a once-a-year contribution (as she has been there over 20 years). If you set it up as discretionary with a group for directors with 20+ years of experience, will this pass muster without being discriminatory? If not, what is the fix?
A. If there are no HCEs, then there is no one to discriminate against! So yes, there would not be a testing failure. The document would need to include this contribution…depending on the document that you have you may have choices as to how to complete the document. For example:
- if this is a contribution that is outlined in their employment contract, then that item should be selected in the 403(b) Adoption Agreement; or
- if your document provides a form of comparability contributions, where you can indicate different groups of employees, that would work as well – as you indicate a group consisting of directors with 20+ years and all other employees being in a different group for allocations.
So the answer is yes—just make sure the plan document can accommodate the allocations indicated above.
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