4039 / What nondiscrimination requirements apply to tax sheltered annuity plans offering salary reduction contributions?
Tax sheltered annuity plans offering salary reduction contributions generally are subject to a single nondiscrimination rule (the “universal availability” rule) with respect to salary reduction contributions. The requirement does not apply to contracts purchased by certain churches or church-controlled1 organizations.2
If any employee may elect to have the employer make contributions to a TSA under a salary reduction agreement, then all employees of the organization other than certain excludable employees generally must be allowed to elect to have the employer make contributions of more than $200 annually pursuant to a salary reduction agreement.3 Furthermore, the employee’s right to make elective deferrals also includes the right to designate 403(b) elective deferrals as Roth contributions, if Roth contributions are otherwise permitted under the plan.4
The final 403(b) regulations clarify that an employee is not treated as being permitted to have 403(b) elective deferrals unless the employee is provided with an effective opportunity that satisfies certain requirements (see Q 4040).