Compliance News | December 20, 2023

Long-Term, Part-Time Proposed Rule for Certain DC Plans

Starting in 2024, long-term, part-time (LTPT) employees must be given the opportunity to make elective contributions to 401(k) plans. And, starting in 2025, LTPT employees must be able to make elective contributions to non-governmental participation 403(b) plans.

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The requirement does not apply to employees covered by a collective bargaining agreement in which retirement benefits were the subject of good-faith bargaining. However, the LTPT rule applies to part-time, non-collectively bargained employees whose employer contributes for non-bargained employees to collectively bargained plans.

This insight summarizes the Treasury Department’s proposed rule on the eligibility of LTPT employees to make elective contributions to 401(k) and non-governmental 403(b) plans and notes implementation challenges for plan sponsors.


The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE) set forth the rules for LTPT employees in 401(k) plans. The SECURE 2.0 Act of 2022 (SECURE 2.0) modified the rules for 401(k) plans and extended them to 403(b) plans. (Collectively, we refer to both laws as “the SECURE Acts.”)

For 2024, an LTPT employee is defined as an employee who works at least 500 hours for a specified number of consecutive 12-month periods. For 2024, the plan looks to hours in 12-month periods starting in 2021, 2022 and 2023.

For 2025 and later years, the definition is an employee who has at least 500 hours for two consecutive 12-month periods. For 2025, the plan looks at hours in 12-month periods starting in 2023 and 2024.

Treasury issued preliminary guidance on the new LTPT employee requirements on September 2, 2020 as Notice 2020-68. SECURE 2.0 corrected certain items discussed in Notice 2020-68, including requiring plans to look back to 12-month periods before 2021 for vesting (relevant only if the plan also provides employer contributions).


Treasury issued a proposed rule implementing the SECURE Acts’ requirements for LTPT employees on November 27, 2023. Plans may rely on these rules for purposes of implementing the new requirement in 2024.

A calendar-year 401(k) plan must operationally comply with the LTPT requirement for 12-month periods starting after January 1, 2024.

Plan amendments incorporating the LTPT requirements may be delayed until the end of the 2025 plan year for single-employer plans, and the end of the 2027 plan year for multiemployer plans (for their non-bargained covered employees).

Definition of LTPT employee

Generally, an employee who is eligible to participate in a qualified cash or deferred arrangement (CODA) for two consecutive 12-month periods (three consecutive periods for 401(k) CODAs in 2024) solely by reason of the LTPT rules is treated as a LTPT employee. In other words, a part-time employee who initially qualifies to be a participant because they satisfy their plan’s hours rule (e.g., 1000 hours) or the elapsed time (service) rule would not be treated as a LTPT employee.

An employee who enters the plan immediately on starting service would not be a LTPT employee because the employee’s entry is not solely on account of the LTPT rules. This solely requirement also means that a plan that uses the “elapsed time” method of crediting service (entry after one year of service with no counting of hours) would not be a LTPT employee (and, indeed, an elapsed time plan could not have a 500-hours requirement).

ERISA and the Internal Revenue Code contain equivalency methods for crediting service in addition to the 1000-hour rule and the elapsed time rule. Because the SECURE Acts did not allow for special rules, the equivalency methods for determining LTPT employees also are based on 500 hours.

Measurement of 12-month periods

The first 12-month measurement period must run from the date of hire. A plan may then switch the 12-month period to conform with the plan’s measurement period, such as the plan year. Under this method, months that are both in the first 12-month period and in the plan year must be counted twice. Alternatively, the plan can continue to use the anniversary year as the measurement period.

In general, all 12-month periods during which an employee is credited with at least 500 hours with the employer or employers maintaining the plan must be taken into consideration in determining an employee’s eligibility to enter the plan as a LTPT employee. Thus, a 12-month period in which the employee is ineligible to enter the plan (e.g., because of an age requirement or a collectively bargained employee exclusion) must still be taken into consideration for purposes of determining whether the employee has consecutive years with at least 500 hours immediately prior to being eligible to become a participant. Twelve-month periods beginning before 2021 are excluded.

The SECURE Acts generally did not create any special break-in-service rules. Thus, whether a LTPT employee who separates from service is subject to the LTPT rules upon rehire depends upon whether the returning employee’s prior service is disregarded under the break-in-service rules. However, a LTPT employee’s break is based on 500 hours because that is the basis for a full year of service.

Consequences of being an LTPT employee

Once an employee satisfies the conditions for being an LTPT employee, the employee must be eligible to make a cash or deferred election. The rule allows the plan to use its existing entry dates for the LTPT employee. The employee is immediately 100 percent vested in their elective contributions.

The plan’s general years-of-service vesting rules apply if the plan provides matching or non-elective employer contributions to LTPT employees, but a special rule applies for vesting purposes for LTPT employees. An employee who initially qualifies as a LTPT employee continues to be treated as a LTPT employee for vesting purposes. Thus, under a controversial provision of the proposed rule, employees who enter the plan as a LTPT continue to receive credit for a year of vesting service based on 500 hours, rather than based on the 1000-hour requirement that non-LTPT employees must satisfy.

For purposes of nondiscrimination testing and top-heavy testing, once the employee satisfies the plan’s normal crediting rules, the employee is considered a former LTPT employee and is no longer excluded from those testing rules.

Other rules

A plan may exclude an employee from participating in a CODA as an LTPT employee if the exclusion in not based on age or service and the employee’s job classification is not covered by the plan. However, a plan cannot exclude a classification that has the effect of an age or service classification (e.g., part-time staff or temporary employees).

The SECURE Acts allow an employer to elect to exempt LTPT employees from the nondiscrimination tests for nonelective and matching contribution. The rule requires the election to apply to all tests or no tests. A plan may exclude LTPT employees from ADP/ACP nondiscrimination testing even if the sponsor chooses to make voluntary matching or non-elective contributions to LTPT employees. An employer maintaining a safe-harbor CODA (i.e., one that passes nondiscrimination based on design rather than operation) does not have to provide the safe-harbor contributions to LTPT employees. LTPT employees are taken into account for purposes of top-heavy testing; however, the plan can elect to exclude LTPT employees from receiving the top-heavy minimum contribution and the special top-heavy vesting schedule.

A plan may exclude LTPT employees from making catch-up Roth contributions without violating the universal availability test. As explained above, former LTPT employees are not excluded from any of the tests.

To exclude LTPT employees from testing, a plan that uses the elective contribution ADP test and the after-tax employee contribution/matching contribution ACP test must include in the plan document the exclusion for LTPT employees from the tests. For a plan that uses the safe harbor approach, the election does not have to be included in the plan document, but enabling language allowing an election does have to be included in the plan document.

Implications for plan sponsors

The biggest problem with the proposed regulations is that they did not come out until the end of November, and they not only apply as of January 1, 2024 for calendar-year 401(k) plans but those plans need to look back at records for 2021, 2022 and 2023 to see who are LTPT employees in 2024. Many plans’ record systems are not ready to generate that information.

While plans do not need to be amended for these new rules, the plans must operate in accordance with them. Plans that may want to avoid the LTPT rules by allowing all employees to make elective contributions immediately may find that, if they don’t act quickly, some of their employees are already LTPT employees. While this is generally not a major issue, it does mean under the proposed regulations that the plan will have to continue treating them as LTPT employees and vest after 500 hours (if they count hours) even though other employees will not be credited with years of service for vesting purposes until they attain 1,000 hours.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.