Treasury, IRS Issue Part-Time Eligibility Guidelines for ERISA 403(b) Plans

The U.S. Department of the Treasury and IRS this week issued guidance confirming that student employees are not considered long-term, part-time employees of their colleges and universities for the purposes of retirement savings in 403(b) plans.

According to a question-and-answer section of the guidance, Employee Retirement Income Security Act 403(b) plans are not required to provide student employees the right to make elective deferrals into a plan, even if that student otherwise qualifies for long-term, part-time employee classification under ERISA.

The clarification was one that higher education plan sponsors were seeking because maintaining the necessary records for all student employees was considered cumbersome, according to Mike Webb, a senior manager in the retirement plan consulting group at CAPTRUST.

The guidance came in an 11-page release from the agencies addressing long-term, part-time employees in 403(b) retirement plans under the SECURE 2.0 Act of 2022, provisions of which apply to 403(b) plans beginning in 2025.

The release, Notice 2024-73, includes guidance for the charities, public schools, and state or local governments that operate 403(b) plans that are subject to the Employee Retirement Income Security Act. The rules do not apply to 403(b) plans that are not subject to ERISA.

Rules for long-term, part-time employees in 401(k) plans were published in November 2023.

In addition to student employees, the guidance addresses when plans can exclude other part-time employees from a 403(b) plan if they do not meet the long-term part of the requirements.

“A 403(b) plan that is subject to ERISA may continue to retain a part-time employee exclusion for part-time employees who do not qualify as ERISA LTPT employees,” the IRS wrote. “Excluding part-time employees who do not qualify as ERISA LTPT employees will not cause the plan to violate the section 403(b) consistency requirement … which prevents a plan from selectively applying the part-time employee exclusion to some, but not all, part-time employees.”

The guidance continues: “Because the eligibility rules for ERISA LTPT employees under section 202(c) of ERISA are new statutory requirements, plans would not be selectively applying the part-time employee exclusion by continuing to exclude from making elective deferrals part-time employees who do not qualify as ERISA LTPT employees.”

David Levine, a principal in Groom Law Group, said the guidance “provides more clarity as to the interaction of the 20-hour rule with the long-term, part-time rule” regarding ERISA 403(b) plans.

The notice also states that an employer with an ERISA 403(b) plan can exclude so-called ERISA long-term, part-time employees from determinations about whether matching contributions satisfy nondiscrimination requirements.

The notice also announced that the final regulation the Treasury Department and the IRS plan to issue for 401(k) plans on long-term, part-time employees will apply no earlier than to plan years beginning on or after January 1, 2026.

Treasury and the IRS stated that the agencies are accepting public comments on Notice 2024-73, comments which should be submitted in writing on or before December 20.