LTPT determination when the 403(b) plan excludes employees who work under 20 hours/week

[Santo Gold]

Under 20 hours/week is roughly equal to 1000 hours/year.  Our 403(b) plan would by definition possibly exclude individuals who work 500-999 hours, which would fit the LTPT classification.  Based on the guidance that was recently released, I would conclude that LTPT applies to any 403(b) employees who have been kept out of the plan but who have worked 500-999 hours each year since 2021.  They would have to be provided with the opportunity to contribute to the plan.  

Would you agree?

Thank you

 

[Peter Gulia]

About part-time employees, which provisions might be implied by law, or might be needed for a plan to tax-qualify under Internal Revenue Code of 1986 § 403(b), relates to whether the plan is:

a plan governed by part 2 of subtitle B of title I of the Employee Retirement Income Security Act of 1974,

a church plan that has not elected to be ERISA-governed,

a governmental plan,

a payroll convenience with so little employer involvement that it is not a plan within ERISA § 3’s (rather than IRC § 403(b)’s) meaning.

For an ERISA-governed plan, ERISA sections 202 and 203 command provisions partially similar to IRC § 401(k)(2)(D)’s provisions for a cash-or-deferred arrangement. Under Reorganization Plan No. 4 of 1978, the Treasury’s notice of proposed rulemaking to interpret IRC § 401(k)(2) also is an interpretation about similar provisions in ERISA §§ 202-203. If an ERISA-governed plan’s administrator interprets the plan to include eligibility provisions implied by ERISA §§ 202-203 and looks to the Treasury’s interpretation as an aid to the administrator’s interpretation, a court might treat that as some evidence of the administrator’s good faith.

For a nonplan, all employees are eligible because for an employer to decide which employees are eligible would establish an ERISA-governed plan (if it’s not church or governmental).

For a plan that is not ERISA-governed, IRC § 403(b)(12) describes provisions for a plan to get § 403(b) Federal income tax treatment.

Beyond Federal law:

For a governmental plan, State law governs which provisions a plan must, may, or must not include.

For a church plan, internal church law might govern which provisions a plan must, may, or must not include.

As always, a plan’s administrator (or an employer) should get its lawyer’s advice.

Santo Gold, if you tell us which of the four kinds of § 403(b) plan your client maintains, BenefitsLink neighbor might be able to give you more detailed help.

[LauraH]

In addition to what Peter said, don't forget that:

1.  The LTPT eligibility rules only apply to 403(b) plans that are covered by ERISA; and

2. For 403(b) plans, only eligibility computation periods that begin on or after 1/1/2023 are counted.  The earliest a 403(b) plan would be impacted is 1/1/2025.