New IRS Guidance for Long-Term Part-Time Employees in ERISA covered 403(b) Plans at Private, Non-Profit Institutions of Higher Education

In potentially welcome news for public institutions of higher education, in Notice 2024-73, the Internal Revenue Service (IRS) confirmed that the new long-term part-time (LTPT) rules introduced by the SECURE Act and SECURE Act 2.0 do not apply to 403(b) plans sponsored by non-ERISA employers such as state and local governments, public schools and universities, and non-electing churches.

For ERISA-covered 403(b) plans, like those at some private, non-profit schools, the IRS also confirmed that student employees are not LTPT employees of the university or college for purposes of 403(b) participation. Therefore, student employees may be excluded from participation in the plan.

Finally, the IRS confirmed that employees excluded from the plan under the part-time employee exception (those who normally work less than 20 hours per week) must be allowed to make elective deferrals once they meet the LTPT employee requirements. See our prior blog for a general discussion of the LTPT requirements. The plan may continue to use the part-time employee exception for those employees who do not qualify under the LTPT rules.

In preparation for the implementation of the LTPT rules in 2025, ERISA-covered 403(b) plan sponsors should already be monitoring part-time hours. Potential 2025 participation will be determined based on hours worked in 2023 and 2024 hours. If you have questions about the LTPT rules or your 403(b) plan in general, consult with legal counsel.