Contract workers or not in 403(b) plan or not

[TPApril]

Non profit has 403b plan with universal availability

Company has contract workers who work < 8 hours/wk (< 500 hrs/yr)

For tax purposes unrelated to plan, IRS has determined these contract workers s/b classified as ee's

For plan purposes can these contract workers remain contract workers not eligible for the plan under universal availability?

[Belgarath]

When you say "non-profit" do you mean governmental, or non-governmental?

In either case, you may exclude employees who normally work less than 20 hours per week - see 1.403(b)-5(b)(4)(ii)(E). However, if this is a non-governmental ERISA 403(b), be careful that your language has some sort of "fail-safe" provision so that if you are using the 20 hour exclusion, anyone who works 1,000 hours will be eligible, and will remain eligible for all future years.

And in either case, the document must provide for the 20 hour exclusion in the first place - some documents do not.

It'll be interesting to see what language the IRS approves in 403(b) prototypes regarding this issue, once they approve them.

[GBurns]

While you might be able to exclude them from the plan, I must warn you against trying to keep them in "contract worker" status. Employee misclassification can carry severe penalties and you have said that the IRS has already ruled on the issue.

Exclude them as employees if possible, but they can no longer be "contract workers" or "independent contractors".