excluding less than 20 hr/week employees

[Guest penfirn]

May an employer exclude from participation in a 403(B) Plan employees that do not work 20 or more hours a week? I have read commentary recently that indicates this may be permissable. However, the commentary does not provide a cite for this information. In addition, the author is not clear on whether he is speaking of salary reduction or match money or what type of 403(B) plan. Insight on the authors source and the plan and money types to which it applies would be appreciated.

[Dave Baker]

Section 403(B)(12)(A)(i) says that with respect to the employer-provided part of a 403(B) program it must meet the minimum coverage rules of 410(B) as if it were a qualified plan; section 403(B)(12)(A)(ii) basically says the salary reduction feature (if any) has to be available to every employee; but then the "flush language" later in 403(B)(12)(A), which seems to apply to both kinds of 403(B) contributions, says "Subject to the conditions applicable under section 410(B)(4), there may be excluded for purposes of this subparagraph employees who are students performing services described in section 3121(B)(10) and employees who normally work less than 20 hours per week."

I think the idea behind section 410(B)(4) is that if the program excludes all students performing services described (etc.) and all employees who normally work less than 20 hours per week, then the program passes. If the program makes some exceptions (maybe has different eligibility criteria for different departments or employee categories) and hence lets some such students or less-than-20-hour-per-week people into the program, then the employer conceivably could have trouble with the minimum coverage test. But because it's likely that the student and less-than-20-hours categories have no "highly compensated employees" among them, there probably would be no trouble. The employer would test separately the group of people who are such students or in the less-than-20-hours category, and if no HCEs are in that category (and hence no HCEs in that category are getting coverage) then that separate "part" passes the minimum coverage test automatically.

[MWeddell]

Students regularly working 20 or more hours per week can be excluded from the elective deferral portion of a 403(B) plan only if they are employed by their own college, school, or university. I've seen plans where health systems have incorrectly thought they could exclude all students from 403(B) coverage.

This is apparent if one looks up the cross reference to 3121(B)(10) that Dave Baker cites, but I thought I'd emphasize it.

[Guest MAnglim]

More questions about student eligibility. A school's 403(B) Plan may exclude students who are enrolled and attending classes at that school and are also employed by it, but there are a variety of student work situations.

1. Does the exclusion of student workers from a 403(B) Program depend on their exemption from from FICA? S. 3121(B)(10) has to do with exemption from FICA. As far as I've been able to ascertain, a number of institutions use the FICA exemption as a marker for ineligibility for the 403(B) program. During the summer, if the student is not enrolled for classes, he or she is not exempt from FICA. If the Plan excludes students performing services described in s. 3121(B)(10), must a student employee be considered eligible for the 403(B) Program during interim periods when not enrolled for classes?

2. I was confused by MWendell's emphasis on 20 hours. If the Plan excludes students performing services described in s. 3121(B)(10), but does not exclude less-than-20-hour employees, doesn't the exclusion apply to all student workers, regardless of their number of hours per week? Or are over-20-hour student employees somehow different from the under-20-hour student employees?

[MWeddell]

If a student works less than 20 hours per week, a plan may exclude the student because of the number of hours worked. It's only if a student works 20 or more hours per week that the student exclusion becomes crucial.