IRS Provides 403(b) Plan Relief for Part-Time Employees From "Once-In-Always-In" Condition

​The Internal Revenue Service (IRS) published Notice 2018-95 provides transition relief from the “once-in-always-in” (OIAI) condition for excluding part-time employees under § 1.403(b) 5(b)(4)(iii)(B) of the Treasury Regulations.  Under the OIAI exclusion condition, for a § 403(b) plan that excludes part-time employees from making elective deferrals, once an employee is eligible to make elective deferrals, the employee may not be excluded from making elective deferrals in any later exclusion year on the basis that the employee is a part-time employee.  

Commenters have stated that many employers were not aware that the part-time exclusion included the OIAI exclusion condition.

During the "Relief Period", a plan will not be treated as failing to satisfy the conditions of the part-time exclusion merely because the plan was not operated in compliance with the OIAI exclusion condition. The notice details transition relief from the OIAI exclusion condition, including relief regarding plan operations during the relief period, relief regarding plan language, and a fresh-start opportunity after the relief period ends. 

The relief period begins with taxable years beginning after December 31, 2008 (the general effective date for the § 403(b) regulations). For plans with exclusion years based on plan years, the relief period ends for all employees on the last day of the last exclusion year that ends before December 31, 2019. For plans with exclusion years based on employee anniversary years, the relief period ends, with respect to any employee, on the last day of that employee’s last exclusion year that ends before December 31, 2019.