coverage rules 403b

[Guest Peggy806]

I know this must have been covered before, but I just can't seem to put my finger on it. A 403b plan which excludes part time employees and they have employer match contributions. Just wanted someone to tell me if I am right when I assume that the part time employees must be considered in the coverage testing if they are not otherwise excludable under the statuatory exclusions. Thanks a bunch

[ETA Consulting LLC]

Peggy,

Rule #1: The deferral portion of the 403(b) is subject to universal availability, meaning (with very few exceptions) any employee who is expected to work 20 or more hours per week must be allowed to defer.

For Employer Contributions (i.e. Matching) then you may impose eligibility standards (i.e. 21 & 1), but the deferrals are subject to universal availability. With this said, you are only performing the coverage test for the employer contributions; not the deferrals.

Now Rule #2.

The IRS does not allow service class exclusions (meaning a service class that is based on a customary work schedule cannot be excluded by class). So, when you say Part-time is excluded from matching contributions, how are you defining part-time?

[Kevin C]

I'd like to add a couple of other cautions about using the less than 20 hour per week exclusion starting 1/1/09. If you do a search, you should be able to find a few threads on the topic.

1) If any employee who could be excluded under the less than 20 hour per week exclusion is allowed to defer, then you can't use that exclusion for anyone. See 1.403(b)-5(b)(4)(i). This rule should also be included in your current document. We had this come up under IRS audit and were told this rule applies even if the person was allowed to defer by mistake.

2) The less than 20 hours per week rules are not consistent with the ERISA eligibility rules. If the 403(b) plan is covered by ERISA, you could be forced to include someone who could be excluded under the 403(b) regs. For example, someone who worked 1,000 hours in a prior year, but has been under 1,000 hours for the most recent couple of years.