Universal availability and LTPT rules

Here’s my understanding:

SECURE Act 2.0 amended IRC section 403(b)(12(A) to make the universal availability rule subject to new ERISA Section 202(c).  This means that 403(b) plans can still exclude students and employees who normally work 20 hours per week. But, once an employee who is expected to work less than 20 hours per week meets the definition of LTPT, that employee must be permitted to make salary deferral contributions under the Plan.  

Because the “student” employee exclusion is not based on service, that classification is not impacted by the LTPT rules.

The issue where further guidance is needed is how does IRC Section 410(b)(4) impact this.  Under IRC Section 410(b)(4), the “20 hours per week” exclusion cannot be used unless all employees within that exclusion category are excluded. Does this mean that if one “20 hours per week” employee later meets the LTPT requirements, then all “20 hours per week” employees must be covered? I think it probably does.

I do not think 403(b) plan sponsors that are excluding “20 hours per week” employees should necessarily amend their plan to remove the “20 hours per week” exclusion. Here’s why: Employers are not required to make non-elective or matching contributions on behalf of participants who are eligible to participate solely by reason of the LTPT rules. If the plan sponsor removes the “20 hours per week” exclusion, then part-time employees become eligible without regard to the LTPT rules.  My concern is that the non-discrimination (and top-heavy) rules would now apply to this otherwise excludable classification.

Agree, disagree? Thanks.

No Top Heavy in 403(b).  No deferral testing in 403(b).  LTPT applies to deferral rules.  It is still possible to use a 20 hour (or another) exclusion category for an employer contribution.  403(b) plans are fortunate with regard to LTPT.  

This is a very topical topic!

I've got a 403b plan with 200+ participants that currently uses the "20 hours per week" exclusion... except that they don't currently have anyone working less than 20 hours per week, so it's been a non-issue.  They are anticipating getting a "significant" number of per diem employees due to offering new services - no exact number yet.  The plan has both a match (100% up to 4%) and an employer contribution (3%).

I'm trying to convince them that removing the exclusion won't be a big deal - the likelihood of the people working 500 - 1,000 hours deferring (and therefore getting the match) is not great, and we can exclude the PD if we make the allocation class-based and if they are less than 30% of the total NHCE population (and that's even assuming they meet the one year to be eligible for the match and employer contributions).

Am I overlooking something with this concept?  Or should I just leave it alone because as long as they administer the 20 hours/week provision correctly (which they have pretty much no experience doing), this all becomes a non-issue?