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Part-time Employee 401(k) Eligibility

On November 24, 2023, the Internal Revenue Service (IRS) released a proposed regulation related to long-term, part-time (LTPT) employee rules for cash or deferred arrangements (CODA) under section 401(k). The regulation is proposed to apply to plan years that begin on or after January 1, 2024, and may be relied on until further guidance is published. LTPT employee eligibility requirements were first established under section 112 of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) and later modified under sections 125 and 401 of the SECURE 2.0 Act of 2022 (SECURE 2.0).
New IRS guidance on long-term, part-time employees in defined contribution plans
Milliman | Nov 2023

Proposed Rule and Comment Instructions

Long-Term, Part-Time Employee Rules for Cash or Deferred Arrangements Under Section 401(k)
IRS via Federal Register | Nov 2023

Additional Articles

Beginning in 2024, under the SECURE Act, 401(k) plans are required to permit part-time employees who perform work for at least 500 hours of service over three consecutive years to contribute to a 401(k) plan.  SECURE 2.0 expanded part-time employee eligibility even further, providing that employees who work for at least 500 hours of service over two consecutive years must be eligible to contribute to a 401(k) plan beginning in 2025. Employees who meet these eligibility standards are referred to as "long-term part-time" employees, or LTPT employees, throughout.
The Long Wait for the Long-Term Part-Time Guidance is Over
Seyfarth | Nov 2023

Soley Means Solely: It's helpful to understand the drafting approach taken in the Prop. Reg. The special rules dealing with LTPTEs apply only if an employee is in the plan "solely" because of the LTPTE rules. The Prop. Reg. takes a strict interpretation of "solely." An employee who is eligible to defer under a plan provision that is more liberal than the statutory definition of a LTPTE—such as a plan having immediate eligibility or using the elapsed time method—is NOT a LTPTE. For example, if a plan provides for immediate eligibility, then there are no LTPTEs in the plan, even though some of the employees might have satisfied the definition of a LTPTE in the Code.
Gobbling Up the LTPTE Proposed Regulation
ASPPA | Nov 2023

Vesting: According to the rules, employees can also earn vesting credits for employer contributions using the same logic. In other words, if a part-timer works at least 500 hours for a year and then becomes full-time for a year, or vice versa, an employer with a two-year vesting schedule must credit the worker for both years.
Part-Time Retirement Eligibility Proposal Seeks to Clarify Complex Legislation
Plan Adviser | Nov 2023

What is considered a "year" for determining eligibility here?: Thankfully, the rules are the same for LTPT as for other eligibility questions.  The first year we look at is the employee's anniversary year, i.e. from date of hire to the first anniversary.  After that, plans have the option to stick with anniversary years or switch to plan years.  Since continuing with anniversary years creates a different review period for every employee, many companies choose to move to the plan year.
It's About Time – Long Term, Part Time Employees – Part 1
DWC | Nov 2023

The LTPT provisions apply only to 401(k) plans. They do not apply to 403(b) plans or 457(b) plans, nor do they apply to collective bargaining units.
Long-Term Part-Time Employee Participation in 401(k) Plans Begins in 2024
Ballard Spahr | Nov 2023

The Time for Long-Term Part-Time Employee Eligibility Compliance Has Nearly Arrived!
Jackson Lewis | Oct 2023


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