4040 / When does an employee participating in a tax-sheltered annuity plan have an “effective opportunity” to make elective deferrals for purposes of the nondiscrimination requirements applicable to plans that offer salary reduction contributions?

An employee is not treated as being permitted to have 403(b) elective deferrals contributed on the employee’s behalf unless the employee is provided an effective opportunity that satisfies the following requirements.¹

Whether an employee has an effective opportunity is determined based on all relevant facts and circumstances, including (1) notice of the availability of the election, (2) the period of time during which an election may be made, and (3) any other conditions on elections.

A 403(b) plan satisfies the effective opportunity requirement only if, at least once during each plan year, the plan provides an employee with an effective opportunity to make or change a cash or deferred election between cash or a contribution to the plan.

Furthermore, an effective opportunity includes the right to have 403(b) elective deferrals made on his or her behalf up to the lesser of (1) the applicable limits for 403(b) elective deferrals, including any permissible catch-up elective deferrals under the age 50 catch-up, and the special 403(b) catch-up for certain organizations, or (2) the applicable limits under the contract with the largest limitation, and applies to part-time as well as full-time employees.

An effective opportunity is not considered to exist if there are any other rights or benefits that are conditioned, directly or indirectly, on a participant making or failing to make a cash or deferred election with respect to a contribution to a 403(b) contract.