Learn more about the LTPT provisions, how to stay compliant, and what to expect going forward.
Brief Background
SECURE 1.0, signed into law on December 20, 2019, introduced the new provisions which were expanded upon in SECURE 2.0 when signed into law on December 29, 2022. The intent is to address the eligibility gap for lower income workers by allowing employees who meet certain service requirements to be eligible for part of the employers' retirement plan. For our Q&A page, click here.
Applicability and Effective Dates
Long-Term Part-Time (LTPT) rules will go into effect on January 1, 2024 for 401(k) Plans and January 1, 2025 for ERISA 403(b) Plans. These plan types must comply with the new LTPT rules.
The provisions are not applicable to Collective Bargained plans nor plans that are not subject to 410 requirements, such as governmental plans.
What is a Long-Term Part-Time (LTPT) Employee?
A Long-Term Part-Time (LTPT) Employee is any employee who has worked at least 500 hours but less than 1,000 hours for 3 consecutive 12-month periods and are of age 21 or older. It is important to note that if your plan uses a lower age requirement, or has no age requirement, that provision for plan eligibility applies, regardless of the 21 age requirement in the rule.
Eligibility Requirements
Generally, and by design, the statutory eligibility requirements a qualified retirement plan can impose on employees is capped at 1,000 hours per year. If this provision is in place, any employee not meeting that hour requirement within the determination period would be excluded from participation.
The new provisions require employers to determine which employee falls into the updated service condition based on their date of hire and the hours worked starting with the first 12-month period beginning in 2021 for 401(k) plans and in 2023 for ERISA 403(b) plans.
Step 1 - Employees of Non-Service-Based Excludable Classes
Check Plan Exclusions First
If your plan provides for exclusions like Union and/or Non-Resident Aliens, those exclusions for non-service-based reasons supersede the LTPT employee provisions.
If your plan has additional exclusions, only those non-service-based exclusions apply. For example: an LTPT employee is found and that employee is a member of the non-service-based excludable class previously written into the plan's documents: "All Employee of Division A of the Employer are excluded for all Plan Purposes." This exclusion is not service-based, as such that LTPT Employee, or any employee falling into that class regardless of being an LTPT employee, will remain excluded from the plan.
It is important to note that service-based exclusions can complicate the administration of the plan. Should any LTPT Employee be found in the course of your review using the steps below and that employee would have otherwise been excluded from the plan, they must be offered the ability to defer as discussed in Step 3 below.
Step 2 - Determine Your Long-Term Part-Time Employee Base not Excludable by Plan Provisions
1. Example in a 401(k) Plan that does not Shift
This example illustrates how an employer can determine the applicability of the new provisions on an employee-by-employee basis.
Plan Year: 12/31, Calendar Year Plan End Date
Eligibility Requirements: Age 21, and 1,000-hours of service within a 12 month period, and semi-annual entry dates; and, the plan does not shift the computation period to the plan year*.
Employee: Age 46, hired 12/1/2020, and has worked between 500 and 999 hours in every 12-month period since hire.
Service History (hours worked in each 12-month period):
12/01/2020 - 11/30/2021 = 550 hours (disregarded**)
12/01/2021 - 11/30/2022 = 650 hours
12/01/2022 - 11/30/2023 = 850 hours
12/01/2023 - 11/30/2024 = 850 hours
In our example, this employee will enter the plan on 01/01/2025 under the LTPT employee rules.
*It is important to note that while most plans shift, in our example, the plan does not shift the computation period to the plan year. This means that you must count hours from anniversary date to anniversary date starting with the employee hire date unless that hire date coincides with a year prior to 2021.
**In a 401(k) plan, service in any period beginning before 2021 is disregarded; since service started on 12/01/2020 that first 12-month period is not counted in the determination.
2. Example in a 401(k) Plan that does Shift
In this next example, we will use the same assumptions as above; however, this plan does shift the eligibility period to the plan year. This example illustrates how an employer can determine the applicability of the new provisions on an employee-by-employee basis if the plan shifts the eligibility computation period to the plan year from date of hire (most common).
Plan Year: 12/31, Calendar Year Plan End Date
Eligibility Requirements: Age 21, and 1,000-hours of service within a 12 month period, and semi-annual entry dates; and, the plan shifts the computation period to the plan year.
Employee: Age 46, hired 12/1/2020, and has worked between 500 and 999 hours in every 12-month period since hire.
Service History (hours worked in each 12-month period):
12/01/2020 - 11/30/2021 = 550 hours (disregarded**)
01/01/2021 - 12/31/2021 = 650 hours - Shift
01/01/2022 - 12/31/2022 = 850 hours
01/01/2023 - 12/31/2023 = 850 hours
In our example, this employee will enter the plan on 01/01/2024 under the LTPT employee rules.
**In a 401(k) plan, service in any period beginning before 2021 is disregarded; since service started on 12/1/2020 that first 12-month period is not counted in the determination.
3. Example in a 401(k) Plan that does Shift and Employee hired after 2021
In this next example, we will use the same assumptions as above; however, the employee was hired after 2021.
Plan Year: 12/31, Calendar Year Plan End Date
Eligibility Requirements: Age 21, and 1,000-hours of service within a 12 month period, and semi-annual entry dates; and, the plan shifts the computation period to the plan year.
Employee: Age 46, hired 03/1/2022, and has worked between 500 and 999 hours in every 12-month period since hire.
Service History (hours worked in each 12-month period):
03/01/2022 - 02/28/2023 = 650 hours
01/01/2022 - 12/31/2022 = 520 hours - Shift
01/01/2023 - 12/31/2023 = 650 hours
01/01/2024 - 12/31/2024 = 650 hours
In our example, this employee will enter the plan on 01/01/2025 under the LTPT employee rules.
Step 3 - Offer Deferral Option to the Remaining Non-Excludable LTPT Employees
For all remaining Long-Term Part-Time employees not subject to plan exclusions, the plan sponsor and employer must allow those employees to make salary deferrals into the retirement plan as of their eligibility date determined earlier.
While employers are not required to offer employer contributions to these LTPT Employees, they must be offered the ability to defer into the plan.
Additional Resources
For Q&A's on LTPT Employees, which is continuously evolving, please see our Q&A's on LTPT Employees.