By Jenny Kiffmeyer, J.D – The Retirement Learning Center

Long-Term Part-Time Employees and Liberal Plan Entry

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Indiana is representative of a common inquiry related to long-term part-time employees. The advisor asked: My client is concerned about the Long-Term Part-Time Employee (LTPTE) rules. His plan allows employees to enter the plan as of the first of the month following their date of hire, without an hour of service requirement. How do the LTPTE rules apply in his case?

Highlights of the Discussion

The short answer is—they do not apply. Here’s why. Under the LTPTE rules for 2024, employees who had at 500-999 hours of service in 2021, 2022 and 2023 (i.e., three consecutive years) and reached age 21, would have become eligible to defer into the company’s 401(k) plan in 2024. Pre-2021 service is ignored in this case. For 2025, the years of service requirement is reduced to two years. Therefore, an employee with at least 500-999 hours of service in 2023 and 2024, and who is age 21 would become eligible for deferrals in 2025. Pre-2023 service is ignored for this purpose.

If a plan has immediate eligibility (no hour of service requirement) or the eligibility requirements are more liberal than the LTPTE eligibility requirements, then the LTPTE rules are not applicable (REG–104194–23).

Since the plan’s eligibility provisions, in this case, allow employees to enter the plan as of the first of the month following their date of hire without any hour of service requirement, the LTPTE rules do not apply as the eligibility rules are more liberal than the LTPTE requirements.

Conclusion

In 2024, we saw the first LTPTEs become eligible to participate in 401(k) plans. Plans that have more liberal eligibility requirements than those outlined under the LTPTE rules are not subject to the LTPTE rules.