Kutchins, Robbins & Diamond, Ltd. Certified Public Accountants and Advisors

Exclusion of Exempt Organization Employees from Retirement Plans

The IRS has finalized proposed regulations, with modifications, permitting the exclusion of employees of Code Sec. 501(c)(3) exempt organizations and governmental entities for purposes of testing whether a 401(k) or 401(m) retirement plan satisfies the minimum coverage requirements.

The final regulations retain the rule that employees of governmental entities, who are precluded from being eligible employees under a 401(k) plan may be treated as excludable employees, provided more than 95 percent of the employees who are not precluded benefit under the plan for the year.

In addition, the final regulations also provide that employees of 501(c)(3) tax-exempt entities who are eligible to make salary-reduction contributions may be treated as excludable employees if:

  1. No employee of the exempt organization is eligible to participate in the 401(k) or 401(m) plan, and
  2. At least 95 percent of the employees of the employer who are not employees of the exempt organization or employees of a governmental entity are eligible to participate in the 401(k) plan.

If you need help with taxes in your non-profit, please contact us at 847-240-1040 or contact us online.

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