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Election Not To Participate

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Does anyone know whether an otherwise eligible employee may voluntarily elect not to participate in a 403(b), i.e. not receive the employer contribution? I know there are prohibitions against irrevocable elections not to participate in a standardized prototype 401(k) plan but what is the rule with respect to 403(b)s? I'm worried too it might affect passing the coverage test.


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Guest Guest_churchman

Well, I have one response and one question.


We have an employee who has elected not to have monies deducted from his salary starting in the middle of the year and is, therefore, not active. I do not know whether that constitutes a 'participation'. However, our understanding of one difference between a 401(k) and 403(b) is that we (403) are permitted to declare whatever "employer contribution" we wish at year end (we are a church).


However, there seems to be an open question as to whether the employer is 'obligated' to distribute employer contributions to employees who are still employed but not currently active for that period of the year in which they were active. We have sought advice but finding none, we are leaning toward a position that "equal treatment" suggests that it is appropriate to distribute. This 403(b) apparently was set up by the employees separately from the church and there seems to be no document of understanding as to what the church's obligations were/are.


Regarding the question, I'll bite. What is a "coverage test"?



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