Excluding EEs who worked less than 20 hours/week

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I just inherited a 403(b) plan that provides for ER match and profit sharing contributions. It is my understanding, since the plan has ER contributions; it is subject to Title I of ERISA. The ERISA Outline Guide states plans that are subject to Title I of ERISA cannot use the part-time exclusion. However, when I look at the document, the part-time EE exclusion was checked for all sources. Am I missing something?

Any thoughts would be greatly appreciated.

[Guest Mr. Kite]

There are some previous threads dealing with this. Although nothing in 403(b) explicitly prohibits an ERISA plan from using the part-time employee exclusion for employee deferrals, in practice the part-time exclusion is incompatible with the ERISA participation rules.

[LIBERTYKID]

I just inherited a 403(b) plan that provides for ER match and profit sharing contributions. It is my understanding, since the plan has ER contributions; it is subject to Title I of ERISA. The ERISA Outline Guide states plans that are subject to Title I of ERISA cannot use the part-time exclusion. However, when I look at the document, the part-time EE exclusion was checked for all sources. Am I missing something?

Any thoughts would be greatly appreciated.

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I think the answer is in how you say it. 403(b) plans can exclude employees who work fewer than 20 hours a week if the plan is not subject to ERISA. If the 403(b) plan is subject to ERISA, ERISA applies and only permits an exclusion if an employee is credited with less than 1,000 hours of service. So I see no reason why you can't draft the plan to put in the ERISA exclusion language.

Anyone agree? Disagree?

[Guest Mr. Kite]

I don't think you can impose a year-of-service requirement for participation in elective deferrals, because that will violate the all-or-none universal availability rule for 20-hour/week employees.

Here's the problem -- 20-hour/week employee status applies to any employee who (1) at the time of hire, is reasonably expected to work fewer than 1000 hours in the first 12 months of service, and (2) works fewer than 1000 hours during each subsequent plan year (or each succeeding 12-month period if specified in the plan). So here's what can happen -- an employee hired June 1 of Year 1 is expected to work fewer than 1000 hours during the 12-month period ending June 1, Year 2, but in fact works 1200 hours; however, for the Year 2 plan year, and all succeeding plan years, the employee in fact works fewer than 1000 hours. Therefore, the employee is a 20-hour/week employee for 403(b) UA purposes -- but under ERISA the employee has satisfied the year of service condition and must be allowed to participate in making elective deferrals. But now, under the all-or-nothing rule in 1.403(b)-5(b)(4)(i), since this 20-hour/week employee is allowed to make elective deferrals, ALL 20-hour/week employees must be allowed to participate.

By the same token, the ERISA 403(b) plan may not exclude participants under age 21 from making elective deferrals (because the UA rules do not allow such an exclusion).

However, the UA rules do not apply to employer contributions, and therefore you may provide for ERISA-compliant exclusions for matching and/or nonelective contributions.

[Guest Mr. Kite]

Here is an earlier thread on this topic: http://benefitslink.com/boards/index.php?s...=40087&st=0