Understanding Universal Availability and Effective Opportunity Requirements


If your organization offers a 403(b) retirement plan that is also subject to nondiscrimination testing (NDT) for your employees (organizations such as churches, state conventions and other "qualified church-controlled organizations" are not subject), it is essential that your retirement plan documents clearly outline how you administer the:

  • Universal availability requirement and the
  • Effective opportunity requirement.

What is universal availability?

Universal availability means that if an employer permits one employee to defer salary into a 403(b) plan, the employer must extend this opportunity to all employees of the organization — with a few limited exceptions. Your organization is also required to provide an annual, effective opportunity for each eligible employee to make, change or revoke their deferrals (contributions).

Employees are required to receive an Effective Opportunity Notice outlining the date parameters of their annual effective opportunity.

Find a sample Effective Opportunity Notice template at the end of this page, provided by GuideStone®.

What is an effective opportunity?

The regulations state that determining whether an employer provides employees with an effective opportunity to make elective deferrals depends on all the relevant facts and circumstances. Some of the facts and circumstances looked at in determining whether employees have an effective opportunity to make elective deferrals are:

  • Annual notice of the availability of making elective deferrals,
  • The period during which a participant may make an elective deferral election and
  • Whether any other rights or benefits depend on the employee's making elective deferrals.

It is not enough to just verbally inform employees of their ability to make salary reduction contributions when they come to the HR department. It is generally accepted that the IRS would like to see evidence that employees were clearly notified of their ability to make salary reduction contributions.

The IRS has issued additional details about the language required to be included in all 403(b) plan documents regarding elective deferrals and the employee's annual effective opportunity. The following excerpt, which highlights the administration of universal availability and employer administration of annual effective opportunities, is taken from the document 403(b) Plan Listing of Required Modifications and Information Package (LRM) on the IRS website.

A plan may allow for reasonable administrative procedures for plan entry for making elective deferrals, including a reasonable period for providing a participant notice of the right to defer and a reasonable election period, provided that §1.403(b)-5(b)(2) of the Treasury Regulations is satisfied. A plan that provides notice of the right to defer no later than 30 days after commencement of employment, allows the participant to make an election up to 30 days after notice is provided, and provides that the participant's election will be effective as soon as administratively practicable will be treated as having reasonable administrative procedures that do not cause the plan to fail to satisfy §1.403(b)-5(b)(2).

A key takeaway from this excerpted explanation is that every employer should provide newly eligible employees with a notice of their right to make elective deferrals no later than 30 days after hire.

If your organization is like most others, you provide this notice to all new hires. If this is specifically outlined in your plan documents, you are already in compliance.

Additionally, the IRS guidance referenced above states that every new hire must have at least 30 days after receiving their notice to make any deferral elections. Many employers allow participants to make deferral elections at any time. Again, if this is your organization's policy and clearly outlined in your plan documents, you comply with these regulations.

While this does not amount to a significant piece of clarification from the IRS, it offers insight into how the agency views providing an effective opportunity to make or change deferral elections.

Steps to take now

You may want to review your formal process for keeping employees informed about their ability to start or make changes to salary reduction contributions to the 403(b) Retirement Plan. Contact GuideStone for more information.

Creating an Effective Opportunity Notice

If you need help creating an Effective Opportunity Notice, GuideStone provides the below template.

You may modify this sample and develop your own annual notice to inform eligible employees of their opportunity to make deferrals into the 403(b) plan. This notice is provided for convenience only and has not been approved by the IRS. You should review your plan and modify this document to correspond with the terms of your plan. Before sending out the annual notice, you will need to know:

  • Which employees are excluded from making salary reduction contributions (including Roth contributions, if permitted),
  • If your plan offers Roth contributions and
  • The frequency with which your plan allows eligible employees to make changes to salary reduction contributions.

Annual Notice of Right to Participate in 403(b) Plan

To: All employees of <Employer name>

From: <Human Resources Director or Other Business Official>

Date: <Date>

Re: Notice of your right to participate in the 403(b) Retirement Plan of <Employer name>

In compliance with the 403(b) regulations, we are pleased to notify our employees of the availability of a 403(b) plan in which salary reduction contributions <including Roth contributions> can be made.

Eligible employees are permitted to submit Retirement Contribution Agreements (RCA) to the <Payroll / Human Resources / Benefits Department> . The requested salary reduction contributions will begin [<at any period / each month / each quarter> at the first payroll period following receipt of the RCA].

The following information is available to aid employees participating in the plan:

Generally, employees can make salary reduction contributions in an amount up to the lesser of 100% of your includible compensation or <$XX,XXX>* to all elective deferral plans in which you participate. Additionally, the plan permits eligible employees aged 50 or older to make catch-up contributions of up to <$X,XXX>* in the current tax year.

Please be sure to consult with your legal or tax advisor before participating in the 403(b) plan. The <name of employer> does not provide tax or legal advice.

*Find updated numbers to include every year at GuideStone.org/ContributionLimits.