Exclusion of Students for Coverage Testing

[Guest Lane]

Are students (of a plan sponsor university) excludable employees for 410(b) coverage testing purposes when testing matching and other employer contributions? I find no support in the Code or regs for this, but I've read uncited commentary indicating you can exclude students and disregard them for coverage testing purposes.

I understand they are excludable for universal availability, but don't find the same exclusion for employer contribution testing.

Thanks

[ETA Consulting LLC]

Typically, they work less than 1000 hours per year or they're less than age 21, so they'll be excluded.

Good Luck!

[Guest ebgroup]

Are students (of a plan sponsor university) excludable employees for 410(b) coverage testing purposes when testing matching and other employer contributions? I find no support in the Code or regs for this, but I've read uncited commentary indicating you can exclude students and disregard them for coverage testing purposes.

I understand they are excludable for universal availability, but don't find the same exclusion for employer contribution testing.

Thanks

Check 1.403(b)-5(a)(3), you will have to follow all the cross references, there may be a separate test for that group, but it should answer the question.

[Guest Lane]

Thank you. I had not seen that reference. It seems strange that they include the sentence regarding exclusion of these employees in a paragraph titled "Compensation for testing".

[mbozek]

Are students (of a plan sponsor university) excludable employees for 410(b) coverage testing purposes when testing matching and other employer contributions? I find no support in the Code or regs for this, but I've read uncited commentary indicating you can exclude students and disregard them for coverage testing purposes.

I understand they are excludable for universal availability, but don't find the same exclusion for employer contribution testing.

Thanks

There is a flush paragraph at then end of IRC 403(b)(12)(A) which excludes students who are employed by the college from requirements of subparagraph A. See last sentence of paragraph.

[Belgarath]

I have always found this issue a little convoluted. Specifically regarding 410(b) coverage testing on a 501(c)(3) ERISA 403(b) plan that includes employer contributions:

If I understand this correctly, if you have the "less than 20 hour per week exclusion" these employees are also disregarded for coverage testing on the employer contribution. For example, 6 NHC employees, one is excluded under the 20 hour exclusion - when determining the coverage testing group under 410(b), this person is excluded, so there would only be 5 NHC to consider for the 401(b) testing. Of course, if they ever work 1000 hours, then they move out of this excluded class and would then be considered.

Comments?

[Kevin C]

Belgarath,  What are the eligibility requirements for the other employees?  1.403(b)-5(a)(1) says that employer contributions in a 403(b) are subject to 410(b) in the same manner as a qualified plan under 401(a).  1.410(b)-6(b)(2) addresses what happens if there are multiple age/service requirements.  They are only excludable if they fail to satisfy all of the different age/service requirements in the plan.  I would consider the <20 hour per week exclusion as an age/service requirement.  For example, if the >20 hour per week people are immediately eligible for the employer contribution, I read this as saying the <20 hour people are not excluded from the 410(b) test.

If they are not excludable employees, I would expect most, if not all of the <20 hour per week people to be in the otherwise excludable group that can be tested separately.

[Belgarath]

Ah, thanks for the clarification. I don't have  plan in mind - I was browsing through the 403(b) forum re another question, and happened upon this thread. But I'm glad I asked!