The Internal Revenue Service is loosening antidiscrimination requirements for organizations that offer 401(k) retirement plans to some employees and 403(b) plans to others.
The new regulations, published today in the Federal Register, could affect a medical center, university or other organization that includes a government entity along with a for-profit entity, or a nonprofit arm along with a for-profit arm.
Because of current and past regulatory limitations on use of 401(k) plans, some employers have offered 401(k) retirement savings plans for employees of the for-profit arms along with 403(b) retirement savings plans for employees of governmental or nonprofit arms.
Section 410(b) of the Internal Revenue Code sets minimum coverage requirements for employers with 401(k) plans. To meet the requirements, employers must test to see whether rank-and-file employees are getting roughly as much value from the plans as the high-paid employees are getting.
The IRS wrote the new rule, Exclusion of Employees of 501(c)(3) Organizations in 401(k) and 401(m) Plans, to implement a section of the Economic Growth and Tax Relief Reconciliation Act of 2001.
The EGTRRA section lets employers that meet certain conditions exclude 403(b) plan members from 401(k) plan minimum coverage testing.