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403(b) Plans: Accounting for Part-Time Employees

One of the requirements for sponsoring a qualified 403(b) retirement plan is that the plan offer “universal availability.” Essentially, that means that all employees must be offered plan participation, and 403(b) plans cannot exclude groups or classes of employees from participation as is allowed under 401(k) plans. The IRS has been active in examining plans that may have employees who are excluded from participation in keeping with industry practices. Common examples would be hospitals with on-call nurses that are considered part-time, or colleges that engage adjunct professors on a contractual basis.

While exclusion of employee classes is not allowed, 403(b) plans are able to exclude employees who normally work less than 20 hours a week. The IRS found that many employers were either undercounting hours or not counting hours at all, often because these classifications were erroneously considered not to be employees of the institution. Failure to offer plan participation to an employee who exceeds the 20 hours per week requires restoration of contributions to affected employees (both employee and employer contributions), which could be substantial for a large excluded class.

In the case of adjunct professors, the preamble to the Affordable Care Act (ACA) provides a method for counting hours that the IRS has deemed reasonable on audit. The employer would credit:

  • 2.25 hours per week for each hour of teaching or classroom time, plus
  • one hour per week for each additional hour outside the classroom performing required duties.

403(b) plan sponsors should review classes of employees or individuals who are not being offered participation and apply a “reasonable” standard to count hours. Unless these employees are certain to qualify under the 20-hour exclusion, they may need to be included in the plan.

For more information or questions about how this feature affects your plan, please contact Richard Green at or by phone at 844.4WINDES (844.494.6337).
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