2020: Quarter 4 Newsletter
Plan Eligibility Notice Requirements
As part of the administrative services provided by AFPlanServ for your 403(b) Plan, a Sample Plan Eligibility Notice is given to you in each quarterly newsletter to help satisfy the annual Universal Availability requirement.
To access the sample notice for the upcoming plan year 2021, please click here. You may use the sample notice as a template for your customized notification or distribute the sample in its entirety.
Please remember that as the Plan Sponsor, you are required to distribute a Plan Eligibility Notice to all eligible staff members at least annually to comply with the Universal Availability requirement. If you are unsure of who is eligible for participation, please refer to your copy of the Plan Adoption Agreement—which was provided when your Plan was first established—or contact us.
Did you know?
The Internal Revenue Service (IRS) has announced the 2021 contribution, deferral, and catch-up limits for retirement savings. The limits are effective on January 1, 2021. They are applicable to tax year 2021, and are as follows:
- Elective Deferrals: $19,500
- Age 50 Catch-up Contributions: $6,500
- Maximum contribution for participants turning 50 during calendar year 2021: $26,000
- Defined contribution plans: $58,000
Please be aware of these limits when working with your employees on their 2021 deferral changes. If you have any questions, please contact us.
Excess 403(b) Contributions
We work with you to monitor contribution limits for plan participants across all your plan’s approved Investment Providers. In doing so, we help ensure that contribution amounts—including catch-up contributions—do not exceed allowable annual limits. Along with your monitoring efforts, this helps lower the risk of excess contributions. It allows corrective action to be taken before the end of each tax year and thereafter.
AFPlanServ will notify you of any excess contributions that are identified. If those contributions are within the same calendar year, we will notify the provider and request a refund of the excess amount back to the plan.
You will need to stop any remaining payroll deductions immediately. The participant will need to complete a new salary reduction agreement to reduce the amount for the upcoming/current calendar year. If an excess contribution is identified after the end of the calendar year, AFPlanServ will notify you and the provider, and a corrective distribution will be processed to the participant.
The Benefits of 403(b) Plan Contributions
There are three main benefits of contributing to a 403(b) Plan.
First, you don’t pay income tax on allowable contributions until you begin making withdrawals from the plan, usually after retirement. Allowable contributions are either excluded or deducted from your income. However, if your contributions are made to a Roth contribution program, this rule benefit doesn’t apply. Instead, you pay income tax on your plan contributions, but distributions from the plan (if certain requirement are met) are tax-free.
The second benefit is that earnings and gains on amounts in your 403(b) account aren’t taxed until you withdraw them. Earnings and gains on amounts in a Roth contribution program aren’t taxed if your withdrawals are qualified distributions. Otherwise, they are taxed when you withdraw them.
And finally, you may be eligible for a federal income tax credit for elective deferrals contributed to your 403(b) account.
Frequently Asked Questions
Q: What is Universal Availability?
A: Universal Availability refers to the requirement that all eligible employees be given an opportunity to participate in your 403(b) Plan at least annually.
Q: Am I required to keep a copy of the Plan Eligibility Notice?
A: Employees should maintain written procedures for distributing eligibility notices. This could include:
- Copies of the notices provided
- List of employees notified
- Whether notification was mailed or emailed
Plan Reminders
Each year, AFPlanServ provides a Sample Eligibility Notice to help satisfy the Universal Availability requirements.
You may use it as a template for your custom notification or distribute the sample in its entirety.
Please check the Operational Guidelines to ensure you are adhering to the items listed. If you have any questions, please contact us.
If you need more information about your role as the Plan Sponsor, we're happy to help!