Adjunct Professor exclusion and coverage testing

I have an interesting situation. A non-governmental university has an ERISA 403b plan, where they allow the adjunct professors to defer but exclude them from the match, and from automatic enrollment. As of the last couple years the number of these part time adjuncts are exceeding the number of full-time employees resulting in 410(b) ratio percentage test failure. They are still passing coverage on the basis of the ABT but not by a large margin. Thus, we are trying to help find solutions so the testing does not get worse. Some years the adjuncts are on call and they receive no W2 pay, but it appears they still have to be included in the coverage test. Some adjuncts do on line courses now and some teach very highly specialized subject so that they cannot give more classes to each adjunct and reduce the number of adjuncts. They also cannot turn them into independent contractors. Trying to find ways to help them pass coverage without including them in the match - do we have to include individuals with no W2? I think so if the employment relationship has not been terminated; what if the plan auto enrolls the adjuncts? This will help with the ABT test. Another solution - remove some HCE's, maybe set up a non-qualified 457b plan if they are key employees. Any other thoughts? Maybe some of you have seen this before. Thanks!

Depending on the facts, consider some opportunities a plan’s sponsor or administrator might evaluate (with its lawyer’s advice):

Are regular faculty represented in collective bargaining? Are some nonfaculty employees represented? Are adjunct faculty represented or unrepresented (or some of each)? Is distinct testing regarding an unrepresented group available? If so, would it help?

Does the plan uniformly exclude from matching contributions an instructor who is also a student?

Does the plan uniformly provide that the matching contribution is not allocated for a year (however defined or measured) in which the employee lacks a specified number of hours of service?

What approximation method does the university use to count an adjunct’s hours of service? Example: At Baker University, a full-time assistant professor must teach courses totaling seven credits in each of an academic year’s two semesters. Alan Adjunct teaches one three-credit course in each of an academic year’s two semesters. Does the 6/14 ratio suggest that Alan works less than half-time? See 26 C.F.R. § 1.403(b)-4(e)(6) (“For example, a plan may provide for a university professor’s work to be measured by the number of courses taught during an annual work period in any case in which that individual’s work assignment is generally based on a specified number of courses to be taught.”).

Do many adjuncts “normally work less than 20 hours per week”? I.R.C. (26 U.S.C.) § 403(b)(12)(A).

Is an adjunct who has no current appointment severed from employment? (A university’s appointment of an adjunct professor, lecturer, or instructor as adjunct faculty typically is for only one specified semester, with the university having no further obligation. Even for a well-liked teacher, there are lots of ways one might not get a next appointment.) Consider 26 C.F.R. § 1.403(b)-2(b)(19) (defining severance from employment by reference to § 401(k)’s rule); § 1.401(k)-1(d)(2) (“An employee has a severance from employment when the employee ceases to be an employee of the employer maintaining the plan.”). If for a whole year to be tested an adjunct had zero wages, is it reasonable to treat such an adjunct as having been severed from employment before the year began?

For a § 403(b) plan, recognize that § 401(a)(4), § 401(a)(5), § 401(a)(17), § 401(a)(26), § 401(m), and § 410(b) apply only regarding “contributions NOT made pursuant to a salary reduction agreement[.]” Internal Revenue Code of 1986 (26 U.S.C.) § 403(b)(12)(A)(i).

This is not advice to anyone.
 

Thank you, Peter. The comments on whether they could be union employees or some method to consider them terminated is worth pursuing for sure. In terms of an annual hours condition, unfortunately, they would not meet the 1000 hours criteria and thus they would still count against the plan in coverage testing as they are eligible but not benefitting. I do not believe any of them work 1000 hours. The match is the concern because the adjunct represent 56% of the non-highly compensated population.

Thanks!

12 hours ago, 30Rock said:

I do not believe any of them work 1000 hours.

Have they ever worked 1000 hours in a year?

If not could you test coverage on the basis of disaggregating otherwise excludable employees?

No, they have never worked 1000 and if they do they would give them the match. That is a good idea, and I need to look at the testing from last year. The match has no eligibility requirements, but you can still use OEE right? Thank you!

Even if an adjunct teaches in every semester, an adjunct who teaches one course each semester, has no student-counseling obligation beyond her one course, has no administrative obligation beyond grading her course’s students, has no faculty-committees obligation, and has no scholarly-publishing obligation seems unlikely to be credited with 1,000 hours of service in a year.

Universities have a range of conventions for estimating an adjunct’s hours of service. Just to show one:

To discern for the excise tax on not providing health coverage whether an employee has 30 hours a week or 130 hours a month, some employers use this:

“[O]ne (but not the only) method that is reasonable for this purpose would credit an adjunct faculty member of an institution of higher education with (a) 2¼ hours of service (representing a combination of teaching or classroom time and time performing related tasks such as class preparation and grading of examinations or papers) per week for each hour of teaching or classroom time (in other words, in addition to crediting an hour of service for each hour teaching in the classroom, this method would credit an additional 1¼ hours for activities such as class preparation and grading) and, separately, (b) an hour of service per week for each additional hour outside of the classroom the faculty member spends performing duties he or she is required to perform (such as required office hours or required attendance at faculty meetings).”

Page 8552, left column https://www.govinfo.gov/content/pkg/FR-2014-02-12/pdf/2014-03082.pdf

Assume a 15-week semester and that an adjunct teaches in both semesters of a two-semester academic year. Assume an adjunct is expected during a semester to be “reasonably available” to counsel her students. That’s 30 hours under the (b) element of the paragraph quoted above.

To meet 970 hours for the (a) element, a teacher would need 431 hours of classroom time.

Even an adjunct who has taught regularly for many years might never have had a 12-month period with 1,000 hours of service.

Maybe the plan document should be amended to require a year of service for adjuncts for match eligibility and then test them as otherwise excludable? 

From what I understand, this private university uses on calll/Per diem as needed types of instructors. They do have full time professors, and of course they receive the match. But if any of these professors change to adjunct, they remain match eligible - once in always in. 
Thoughts?

I'm not sure you need an amendment to test as otherwise excludable. If they never work 1,000 hours they will always be in the otherwise excludable group as not having a year of service. But you do need good records on the hours by year.

We are a university with a 401(k) Plan. Adjuncts are excluded, however, their hours worked matter for vesting purposes should they become eligible to participate in the plan (Adjunct to full-time faculty or staff). My understanding is that the 401(k) regulations do not expressly allow you to use the ACA calculation for purposes of a 401(k). Is that accurate, and if so, it seems there are no options aside from crediting them with a full equivalency, which is not reasonable. Am I missing something?

Wondering if anyone has thoughts on my April 29th post?