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Universal eligibility? Full-time temporary employee expected to work (less than 1,000 hours).

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For Universal Eligibility, is regularly scheduled for 20 hours per week determined week by week, or is it an annualized test?

In other words, if a 40 hour per week temp is hired for a one month engagement (less than 1,000 hours expectation) can they be excluded as being regularly scheduled for less than 20 hours per week, even though they will be 40 hours per week for one month?

The 1,000 hour test in the 2007 regulations, the LRM definition, and Notice 2018-95 all state that the 20 hour test is really based on expectations for a full year, rather than a week by week schedule. This makes sense in a way. What if you hired a 40 hour per week employee for just a one week assignment ? 

Still, I see many different "interpretations" of UniVersal Availability on websites, and they all dance around (or are unaware) of this issue.

I get around it for most clients by making 403(b) available for all, but this interesting issue came up. 



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An excerpt from IRS Notice 2018-95 - and short answer is that in your example, you can exclude them under the "20 hour" exclusion. Emphasis is mine.

The provision imposes three separate conditions for an employee to be excluded from making elective deferrals under the part-time exclusion: (1) a “first-year” exclusion condition, (2) a “preceding-year” exclusion condition, and (3) the OIAI (“Once In Always In”) exclusion condition. Under the first-year exclusion condition, in order to exclude the employee from making elective deferrals, the employer must reasonably expect the employee to work fewer than 1,000 hours during the employee’s first year of employment. Under the preceding-year exclusion condition, in order to exclude the employee from making elective deferrals in an exclusion year ending after the first year of employment, the employee must have actually worked fewer than 1,000 hours in the preceding 12-month period.

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Thanks, Belgarth, I fully agree and appreciate your response. This annualized approach -expected hours for the year divide by 52- is even more clear in the LRMs, but it can lead to inadvertent problems.

For example, what if a school allows a 40/hr per week summer temp (not expected to reach 1,000 hours) to defer, thinking that's required because of the 40 hour weekly schedule? Universal Availability cannot be applied selectively, so the school now must allow every employee, even those with schedules that are clearly below 20 hours per week, to defer. And if it does not, it has unintentionally violated Universal Availability. 

Another question that stems from this interpretation. What if an employer wants a lower threshholf than 20 hours? How is that administered? Is the 1,000 hours reduced on a pro rata basis?

Finally, the IRS website describing Universal Availability certainly doesn't help. That final sentence states: "A plan that wants to apply the statutory exclusion for part-time employment must determine eligibility for the 403(b) elective deferrals based on whether the employee is reasonably expected to normally work less than 20 hours per week and has actually never worked more than 1,000 hours in the applicable 12-month period."

I honestly think many at IRS don't understand Universal Availability is based solely on hours in the year divided by 52.


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Without having time to go into details, I'll just say that I personally find the "20 hour" exclusion to be an invitation to disaster. Nearly guaranteed screw-ups at some point. Like you, I try to always have a plan allow deferrals for all...

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I agree with you both.  It is required to look at the hours worked at the end of each plan year.  If an employee has worked 1000 or more hours in the preceding year, he or she is eligible in the year following. And, of course, once eligible, always eligible.  There are many articles etc cautioning against the use of the "20 hour" rule.  It is a compliance trap. Also, in the IRS audit documents I have read, the focus is on 1000 hours.  I would not divide 1000 hours by 52.

Patricia Neal Jensen, JD

Vice President and Nonprofit Practice Leader

|Future Plan, an Ascensus Company

21031 Ventura Blvd., 12th Floor

Woodland Hills, CA 91364

E patricia.jensen@futureplan.com

P 949-325-6727

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Also often ncessary to avoid the dreaded audit though.  I can;t believe they (Congress/DOL) don't realize the only reason thousands of plans don't expand eligibility is because of the audit requirement.  Really amazing to me.  That and top-heavy.  Fix those two and availability of retirement plans will skyrocket.

Austin Powers, CPA, QPA, ERPA

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