Written By Jenny Kiffmeyer, J.D – The Retirement Learning Center
My client’s 401(k) plan uses elapsed time for eligibility. How does this work for long-term part-time employees and tracking their eligibility?”
Highlights of the discussion
Since a plan that uses the elapsed time method for determining eligibility does not count hours of service, it must permit an otherwise eligible employee, including a part-time employee, to participate after one year of service—or sooner, based on plan design.
As a refresher, a long-term part-time employee (“LTPTE”) is an employee who
- Completes two consecutive years of service with 500 hours of service in each (for plan years beginning before 2025, three consecutive years with 500 hours of service in each);
- Attains age 21 by the second (or third, if applicable) year of 500 hours of service;
- Is not a union employee or nonresident alien; and
- Does not otherwise satisfy the normal eligibility requirements. An employee who satisfies the normal eligibility requirements before the LTPTE conditions is never a LTPTE, and an employee who satisfies the normal eligibility requirements after becoming a LTPTE ceases to be a LTPTE and becomes a regular participant.
Because eligibility under the LTPTE rules is based on counting hours of service, questions have arisen regarding how this impacts a plan that uses elapsed time for eligibility (e.g., six months).
The elapsed time method uses the total calendar time employed (starting at hire date) instead of counting actual hours worked [Treasury Regulation 1.410(a)-7(a)(2)]. In practice, the LTPTE rules generally do not apply to plans that use the elapsed time method for eligibility because employees will satisfy the plan’s one year of service requirement based on the elapsed time method before they meet the LTPTE conditions.
Conclusion
The LTPTE rules do not apply to plans that use the elapsed time method for determining eligibility. Instead, these employees will become eligible as soon as they meet the eligibility requirements or have been employed for a calendar year.
