Susan D. Diehl
Author’s Note: This has been a challenging endeavor to say the least for many years for colleges and universities whether they are tax-exempt under Internal Revenue Code Section 501(c)(3) or as a public educational institution. As we prepare to enter into the first-time-ever Prototype/Volume Submitter 403(b) Approvals, the counting of hours for adjunct professors may need to be included in the operations manual for the plan, to protect the employer in the event of an audit. Below is a brief explanation of the verbal IRS guidance that has been presented.What Is an Adjunct Professor?
First let’s look at how these professors are hired and their typical duties. An adjunct professor is a part-time professor who is hired on a contractual basis rather than being given tenure and a permanent position. Many universities hire large numbers of adjunct professors because they are flexible and cheaper to maintain than traditional full-time faculty members.
Just like regular faculty members, adjunct professors must fulfill basic educational requirements before they can teach. The use of adjunct professor positions has grown in many universities in response to decreased funding, which forces these schools to make choices that sometimes are difficult. If the choice is between hiring adjunct professors and closing a program, many schools consider it better to hire adjunct professors.Fact — They are employees of the school.Eligibility Concerns and the Universal Availability Rule
Many universities have for years excluded adjunct professors, as a class of employees, from their 403(b) plan. This is not permitted. This is not one of the allowable exclusions from participating in the 403(b).
As noted above, they are employees and therefore cannot be excluded from any of the classes permitted in a 403(b) for the elective deferrals. Therefore, knowing how to count their hours is an important issue.Fact — Employers cannot exclude adjunct professors by “class” from participating in elective deferral opportunity.
Affordable Care Act
Under the Affordable Care Act (ACA), which requires employers to cover full-time employees in their healthcare provisions, the IRS provides some methods for counting adjunct professors’ hours! Interestingly, this method has already been used by some 403(b) employers and accepted by IRS auditors in determining which adjunct professors must be covered under the plan for purposes of the 20 hour rule.A ‘Reasonable Method’ For Crediting Adjuncts' Hours of Service under the ACA
In February 2015, the IRS issued final regulations regarding the employer responsibility provisions of the ACA. Those regulations note the difficulty of measuring hours for adjunct faculty and go on to provide a general standard requiring ‘reasonableness.’ The preamble to the regulations also provides one specific method of measurement that may be used as one of the methods satisfying “reasonableness.” Under this method an employer would credit:
- 2.25 hours per week for each hour of teaching or classroom time
- 1.0 hour of service per week for each additional hour of service outside the classroom performing required duties (e.g., office hours, department meetings).
The IRS does not require that this method be used for determining adjunct faculty hours; rather, it is providing this method as one that is a “reasonable” method that, if used, will not be open to IRS challenge.Example
Let’s look at an example that highlights how critical this would be in determining who is eligible to defer into the Plan.
The university maintains a 403(b) plan that excludes employees that normally do not work 20 hours per week. If an adjunct faculty member with eight hours per week of scheduled classroom time would be credited, using this method, with 17.60 hours of service for the week attributable to those eight hours of classroom time (8 x 2.25 = 17.60). If this same faculty member is also required to maintain at least five in-office hours of availability per week, those five hours would be credited as weekly hours of service in addition to the 17.6 hours attributable to the classroom time, for a weekly total hours of service of 22.60. Therefore this particular adjunct professor would be eligible for the 403(b) plan.Susan D. Diehl, CPC, QPA, ERPA, is President, PenServ Plan Services, Inc.Opinions expressed are those of the author, and do not necessarily reflect the views of NTSA or its members.