How Do New Long-Term, Part-Time Rules Apply to Student Employees in 403(b) Plans?

Q: We are a private university that sponsors an ERISA 403(b) retirement plan. We are a bit concerned with the new Long-Term Part-Time Employee rules that will apply to 403(b) plans, beginning in 2025, as we currently exclude student employees (under the current student employee classification exclusion in section 403(b)(12)(A) of the Internal Revenue Code) from participating in our 403(b) plan for all purposes. If eligibility as an ERISA LTPT employee will now need to be tracked for such students, it will present a significant administrative burden for our institution, never mind the fact that we currently have no operational mechanism for such student employees to make elective deferrals into the 403(b) plan. Will the new rules require us to allow any student employee to defer to the 403(b) plan?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: The Experts certainly empathize with your situation, as we have heard from a number of higher education institutions in this regard. Fortunately, recent IRS guidance, in the form of Notice 2024-73, brought closure to this issue in a manner that will bring a sigh of relief to any plan sponsor who excludes certain student employees from participation in their 403(b) plan.

The notice specifically clarified that student employees can continue to be excluded entirely from 403(b) plans, even if they would otherwise qualify as ERISA LTPT employees (i.e., they have worked 2 consecutive years of 500 hours). As your question implies, this is a huge win for ERISA 403(b) plan sponsors, who have excluded such employees from their plans for decades: the inclusion of student employees would have resulted in a tremendous administrative burden, particularly for private colleges and universities that employ a large number of students.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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