Exclusion of Students During Summer

[Guest Lane]

A university 403(b) plan excludes students performing services described in Code section 3121(b)(10). An individual who is a student during the Fall and Spring semesters continues to work for the university during the summer, but does not take classes during the summer. Assume that the summer break is more than 5 weeks long. It appears the individual is not eligible for the student FICA exception.

Must the individual be eligible for the 403(b) plan during the summer, and then be ineligible again when classes resume in the Fall?

This appears to be the technical reading, but seems to be highly impractical.

I do not find guidance on this, and welcome comments. Thank you.

[Belgarath]

I'll start by saying I don't know the answer. However, I think you could make a good case for the exclusion being valid for the summer if the student is enrolled for the following fall semester? 3121(b)(10) requires that the student in (A) be "enrolled and regularly attending" - and I'd argue that in the absence of guidance to the contrary, a student who was enrolled and regularly attending in the spring and will be again in the fall would qualify.

[jpod]

Isn't the more important question whether the FICA exemption applies to them in the summer? The answer to that will give you the answer to the 403(b) question. If the answer is no FICA exemption, then they must be eligible to participate (unless you also use the less-than-20 hours exemption and they would fall under that). If they have to be eligible, why is it impractical? You tell them they can contribute, and if they do they do and if they don't they don't.

[mbozek]

Isn't the more important question whether the FICA exemption applies to them in the summer? The answer to that will give you the answer to the 403(b) question. If the answer is no FICA exemption, then they must be eligible to participate (unless you also use the less-than-20 hours exemption and they would fall under that). If they have to be eligible, why is it impractical? You tell them they can contribute, and if they do they do and if they don't they don't.

It seems to me that JPOD has the correct approach. The answer depends on whether the student's wages are excluded from FICA during the summer. If the wages are FICA exempt then the student is not eligible to participate in the plan.

[Guest Lane]

Thanks for the replies. It seems that it would be difficult to deal with the situation in which a group of students/employees move in and out of plan eligibility. I was hopeful that there was guidance I've missed that allows plans to apply the student exclusion all year, despite summer employment (and despite required FICA withholding during that employment).

[Belgarath]

Can someone expand a bit upon the guidance that nullifies the exemption in 3121(b)(10)(A)? In other words, apparently somewhere there is guidance that says that summer employment does not qualify for the exemption. Is there official guidance on this issue, or is it just common practice/interpretation? What about over semester break (mid-December to mid/late January, for example - is the exemption nullified for this period? I'd just like to read up on it a bit, as this is the type of question I could see coming up in real life situations.

(Lane - you mention 5 weeks - I'm guessing that this is from something official/published?) I'll probably look to see if I can find anything in one of the IRS pubs on employment taxes has anything on this subject - but it is easier to first see if you have a specific source. Thanks!)

P.S. took a qick look at Pub 15 - says "exempt" but it doesn't tell me anything other than that they are supposedly "exempt" - it doesn't address the thorny "enrolled and regularly attending" question. So that leaves me right back where I started.

P.P.S. - wow - here's a great write-up in the issue, with references! https://policy.itc.virginia.edu/policy/poli...play?id=HRM-008 -

[GMK]

Nice find, Belgarath.

And I like the split infinitive ("it may be possible for an individual to not meet").