The IRS has recently concluded an audit project to determine if school districts sponsoring 403(b) plans are in compliance with an IRS rule commonly known as the “Universal Availability” rule. The rule provides that eligible employees on an annual basis must be given an opportunity to participate in the 403(b) plan. A questionnaire was sent to Ohio K-12 school districts asking each district to identify the methodology the district uses to inform its employees of the opportunity to participate in the school’s 403(b) plan. More details on that project are available on the IRS website.
A school district satisfies the IRS requirement if the district provides an annual notice to employees of the 403(b) plan’s existence with details on how to enroll in the plan and/or change a salary deferral election. Many school districts provide this notice each year in November or December to inform their employees about the 403(b) plan and who to contact in human resources for information on the plan. Providing an annual written notice to all eligible employees will satisfy the Universal Availability rule.
If a school district fails to provide notice, the IRS may require the district to provide contributions on behalf of employees who do not receive the notice. The IRS’s theory is that if an individual employee is not notified annually about the 403(b) plan, then that employee has lost the opportunity to make salary deferrals. The IRS-required fix can be expensive, so it is important for school districts to comply with the rules.