Sutherland Legal Alert: Two Classes of Annuity Providers Do Not Violate § 403(b) Universal Availability Requirement

Sutherland Legal Alert: Two Classes of Annuity Providers Do Not Violate § 403(b) Universal Availability Requirement

By Mark Smith and Vanessa Scott

In Private Letter Ruling 201142033 (July 25, 2011), the Internal Revenue Service (IRS) ruled that the IRC § 403(b) universal availability requirement was not violated merely because (i) a university system made available two classes of annuity providers and (ii) some employees could access both classes of providers, and other employees could access only one class.

  • The university system adopted a consolidated § 403(b) program for all its campuses and selected annuity providers that were available to all employees.
  • Previously, each campus in the system administered a separate § 403(b) program with differing annuity providers. An employee with an existing contract with one of these providers was allowed either to continue making salary reduction contributions to that contract (so long as that provider executed the requisite information sharing agreement under the § 403(b) regulations) or to select a new provider under the consolidated program.

The IRS explained that the § 403(b) universal availability requirement - generally, that all employees have an effective opportunity to make elective deferrals pursuant to a salary reduction agreement - is not violated merely because some employees have more deferral options than others. The ruling expressly:

  • Did not address whether there might be other facts and circumstances in the arrangement that impermissibly constrained the "effective opportunity" of some or all of the employees, and
  • Limited its conclusion to salary reduction contributions, since different nondiscrimination rules apply under § 403(b) to matching and other employer contributions and to after-tax employee contributions.

The ruling was issued two years after it was requested.

If you have any questions about this Legal Alert, please feel free to contact any of the attorneys listed below or the Sutherland attorney with whom you regularly work.

Adam B. Cohen 202.383.0167 adam.cohen@sutherland.com
Jamey A. Medlin 404.853.8198 jamey.medlin@sutherland.com
Alice Murtos 404.853.8410 alice.murtos@sutherland.com
Joanna G. Myers 202.383.0237 joanna.myers@sutherland.com
Robert J. Neis 404.853.8270 robert.neis@sutherland.com
Vanessa A. Scott 202.383.0215 vanessa.scott@sutherland.com
W. Mark Smith 202.383.0221 mark.smith@sutherland.com
William J. Walderman 202.383.0243 william.walderman@sutherland.com
Carol A. Weiser 202.383.0728 carol.weiser@sutherland.com
 
© 2011 Sutherland Asbill & Brennan LLP. All Rights Reserved.
This communication is for general informational purposes only and is not intended to constitute legal advice or a recommended course of action in any given situation. This communication is not intended to be, and should not be, relied upon by the recipient in making decisions of a legal nature with respect to the issues discussed herein. The recipient is encouraged to consult independent counsel before making any decisions or taking any action concerning the matters in this communication. This communication does not create an attorney-client relationship between Sutherland and the recipient.

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