Long Term Part Time Employees may need to be included in your retirement plan

ALERT: Long Term Part Time Employees may need to be included in your retirement plan

January 9, 2024

Beginning January 1, 2024, Long Term Part Time Employees will be allowed to enter retirement plans for making employee deferrals.

As part of the SECURE Act 2019 and the Consolidated Appropriations Act of 2022 (SECURE 2.0), new rules were added that allow Long Term Part Time Employees (wherein after referred to as “LTPTE” to enter retirement plans for the purpose of making employee deferrals. On November 24, 2023, the Department of Treasury issued Proposed Guidance for the operation of these provisions. While these are proposed, the guidance did give Plan Sponsors relief that they can operate using this information without risk, and if there are changes to the final guidance that is different than the proposed, the plan would need to make the changes but would not have to correct anything done under the proposed guidance.

Given the complexity of this guidance, this alert will not cover every possible scenario or nuance, rather this alert is designed to bring to your attention the changes and allow you to start a conversation with us if you have questions. Please contact your AGH representative to get one started.

There is a lot to this new guidance, however it does not affect every Plan Sponsor. So, if you sponsor one of the plans listed below, or if you have plan eligibility rules that allow an employee to enter the plan that:

  • Is a 457 plan,
  • Is a SIMPLE IRA plan,
  • Is a governmental plan,
  • Does not include an hours requirement to determine eligibility,
  • Use the Elapsed Time Method to determine eligibility,
  • Allows for entry more liberally than the 500 hours in a year, or
  • Does not hire anyone as a “part time” employee.

Congratulations! You can skip the rest of this alert. You will not have anyone affected by the LTPTE rules.

What is the LTPTE rule – this rule requires any employee who works at least 500 hours in a 12-month period for three consecutive years beginning in 2021 and is age 21 at the end of the computation period, to enter an employer’s retirement plan for the purpose of making employee deferrals only. The first entry date for these employees would be January 1, 2024.

SECURE 2.0 changed the rule from a three year look back period to a two year look back period starting with entry into the plan on or after January 1, 2025.

Anyone who enters the plan as an LTPTE will carry this designation with them for the entirety of their employment, even if they separate service and return at a later date (seasonal, temporary etc.). This is important to remember as they will continue to be credited with a year of service (think vesting) for every 12-month period they work 500 hours or more.

Even if you have a 1,000-hour requirement for employer contributions, this LTPTE classification only needs 500 hours for that service to count towards a year of vesting. Those who enter the plan on 1/1/2024 will have 3 years of service at that time that will count towards vesting.

The rule does not mandate that Plan Sponsors include those who enter the plan as LTPTE to receive any employer contributions (safe harbor / match / non-elective /top heavy). You may continue to require a hours of service or last day rule to be eligible for the employer contribution and apply that to the LTPTE group. Even if your plan has a safe harbor provision, you are not required to give that contribution to anyone in the LTPTE group, unless they qualify.

You may continue to exclude certain employee groups from the plan, if it is not an attempt to disguise a way to keep part time employees out of the plan. This would apply to “seasonal”, “temporary” and other types of classifications that would normally indicate less than full time employment for the year.

No amendments to your plan document are required until December 31, 2025, for calendar year plans. You are required to start allowing employees who meet the eligibility requirements of the provision into your plan on January 1, 2024.

If AGH is your plan recordkeeper we have been tracking this information for you and can provide information on who this may affect in your plan. Please reach out to your AGH Associate for more details.

This is not a full description of the provision or the proposed guidance that was published. Our intent is to make sure you are aware of the change and let you know we are here to help with your questions. Please reach out to your AGH contact about this, or any of the provisions of the SECURE Act as it relates to your plan.

Brad Bechtel

Senior Vice President
Employee Benefit Services

Brad Bechtel leads AGH’s employee benefit services (EBS) division, which serves clients nationwide. EBS is one of the region's largest providers of retirement plan recordkeeping services for daily valuation plans. The division provides consulting services to clients on employee benefit plans, including plan design, implementation, operation, fiduciary due diligence, compliance, and through affiliate AGH Wealth Management, discretionary and non-discretionary investment fiduciary services, investment advisory services and employee education.

Brad is experienced in executive compensation, including non-qualified, phantom stock, top hat and excess benefit plans, as well as other deferred compensation approaches. He has consulted for numerous Fortune 500 corporations on investment management and fiduciary due diligence. He also provides search and selection due diligence consulting services for companies seeking new investment and recordkeeping providers for their qualified plans. Brad is a registered investment advisor who holds Series 7, 24 and 66 FINRA registrations, and he is a member of the American Society of Pension Professionals & Actuaries.

NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.

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