Long-term part-time (LTPT) employment eligibility is a topic that has become increasingly relevant in recent years.
Many individuals work part-time for various reasons, such as interships, contract work or to supplement their income. Many companies also have a tendency to hire seasonal workers and retain them on an annual basis. These situations may deem someone eligible to be classified as long-term part-time. However, the question of eligibility for LTPT employment depends on a variety of factors.
Historically, part-time employees have had difficulty meeting requirements to participate in company retirement plans. Under the SECURE Act of 2019 (or SECURE 1.0), individuals who worked at least 500 hours in three consecutive years are now eligible to participate in a retirement plan.
Additional Legislative Changes
Secure Act 2.0 passed a provision that builds on the SECURE Act requirement allowing increased eligibility for long-term part-time workers to participate in employer-sponsored plans.
- Employers need to start counting hours for part-time employees dating back to Jan. 1, 2023.
- The first date that eligible long-term/part-time employees must be offered participation is Jan. 1, 2025, two years following the start date for counting hours.
- An employee must complete either 2 consecutive years of service (where the employee completes at least 500 hours of service) or 1 year of service (with the 1,000-hour rule).
Who Will Be Affected?
401(k) and 403(b) plans that are subject to ERISA will be required to adhere to the new rules.
Business Owners
- Employers have the option to apply more favorable eligibility provisions for LTPT employees, such as minimum age and eligibility service. This can help to ensure that these employees have access to retirement savings opportunities and can help to improve employee retention.
- Employers have the discretion to make employer contributions for LTPT employees. This can help to incentivize participation in the plan and help to boost retirement savings for these employees.
- Employers don’t have to worry about LTPT employees affecting non-discrimination testing as they have the ability to exclude them. This can help to keep the retirement plan compliant.
- Employers must recognize that both the new two-year rule and the older three-year rule are currently in place. As a result, employees who qualify for the previous rule must be allowed to defer in 2024.
Employees
- The provision allows LTPT employees meeting eligibility requirements to participate in a 401(k) or 403(b) plan subject to ERISA to make deferral contributions. This can help these employees to achieve their financial wellness goals and provide more opportunities for retirement.
Next Steps
The LTPT rules may seem complicated and overwhelming for business owners. However, with proper planning and communication with your plan's service providers, you can stay ahead of any necessary changes to plan design, current processes, and systems. At Leading Retirement Solutions, our team of experts can work with you to develop a comprehensive understanding of your plan and ensure that you are in compliance with all regulations.
For tips and information regarding retirement plans, contact us.
