Exclude adjunct professors

Can a 403(b) plan exclude adjunct professors as a job class?  Most of those employees are under 1,000 hours per year.  Some might have been a full time employee that went to adjunct status.  They are paid by the number of courses/classes they teach.  They do not have hours works tracked.  Would they have to pass the ratio percentage test or could they use the ABT for coverage?

What if they allow them to defer and just exclude them from the match based on their job classification?

Without saying whether it’s an accurate or complete description of relevant law, here’s what the Internal Revenue Manual, at 4.72.13.14.1 ¶ 10, says:

Excludable employees may be disregarded in applying the universal availability test for salary reduction contributions.  See 26 CFR 1.403(b)-5(b)(4).  These include:

. . . .

Employees who normally work less than 20 hours per week (or such lower number of hours per week as may be set forth in the plan)

Note:

This exception must be based on hours worked and cannot be based on a job classification (such as “part-time employee” or “adjunct professor”) unless the classification is defined in the plan using the permitted hours requirements.  Once an employee can no longer be excluded under b), the employee always remains eligible to participate thereafter (i.e., once-in-always-in).  See 26 CFR 1.403(b)-5(b)(4)(iii)(B)

https://www.irs.gov/irm/part4/irm_04-072-013-cont01.html#d0e2551

cdavis25, don't forget the all or nothing rule in 1.403(b)-5(b)(4)(i). Even if the <20 hours per week exclusion works initially, one mistake and they lose the ability to use that exclusion. Considering you usually discover the mistake well after the fact, that can be an expensive problem.

Peter, that is interesting.  I did notice the July 2016 date for that section.  I've heard that once-in-always-in is included in the pre-approved 403(b) documents.  For ERISA covered plans, it solves the conflict between ERISA and the 403(b) regulations. I just wonder how that will be enforced before the new documents are effective.  Our current 403(b) document mirrors the regulations, which taken literally, do not read as once-in-always-in. 

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What if they allow them to defer and just exclude them from the match based on their job classification?  

That would be my suggestion, provided they pass 410(b) for the match.

They would definitely have to allow them to defer.  The exclusion based on job classification could apply only to the match.