If you employ part-time employees, it’s important you understand the upcoming Long-Term Part-Time rules effective January 1, 2024. Long-term part-time employees who weren’t previously eligible may now have an opportunity to make salary deferral contributions to your plan.

Historically, 401(k) plans could require employees to work at least 1,000 hours during a year to become eligible to enter the plan. So, some part-time employees would never meet the eligibility criteria. The SECURE Act of 2019 (or SECURE 1.0) expanded coverage to allow those who had worked at least 500 hours in three consecutive years to participate under a plan’s salary deferral provision. SECURE 2.0, signed into law in December 2022, then shortened this wait to two years. Here are the details.

What is a Long-Term Part-Time (LTPT) Employee?

Starting with plan years beginning on or after January 1, 2021, if an employee works 500 or more hours in three consecutive years, the plan must allow the employee to make elective deferrals starting on January 1, 2024.

• Service prior to 2021 is excluded.
• No employer contributions are required to be given to these participants.
• Employees must still satisfy the plan’s age requirements.

Do these rules apply to your plan?

To answer this, review your plan’s minimum eligibility service rules. These rules will apply if your plan:

• Counts hours to determine eligibility and requires more than 500 hours in a 12-month computation period.
• Excludes any employee (directly or indirectly) based on the period of time they work for you. Examples include part-time, seasonal, and temporary employees. The LTPT rules will need to be considered before such employee may be excluded.
• Excludes employees that “normally work less than X hours per week” (where X is no more than 20 hours).

How do you know if your LTPT employees are now eligible? Here are a few examples that illustrate how the rule works.

Example 1 – John

John worked 500 hours in 2021, 500 hours in 2022, and 500 hours in 2023
Yes! John is eligible to enter the plan January 1, 2024, because he had three consecutive years working at least 500 hours.

Example 2 – Mark

Mark worked 400 hours in 2021, 500 hours in 2022, and 500 hours in 2023.
No, Mark is not eligible to enter the plan because he did not work 500 hours in three consecutive years.

Example 3 – Sam

Sam worked 500 hours in 2021, 400 hours in 2022, and 500 hours in 2023.
No, Sam is not eligible to enter the plan because he did not work 500 hours in three consecutive years.

The SECURE 1.0 Act’s Three-Year Rule.
The SECURE Act of 2019 expanded coverage to allow part-time employees who had worked at least 500 hours during three consecutive years to participate under a plan’s salary deferral provision.

The SECURE 2.0 Act’s Two-Year Rule.
Effective for plan years beginning in 2025 and later, SECURE 2.0 shortens the eligibility for LTPT employees from three years to just two, in addition to expanding the rules to cover ERISA 403(b) plans.

We’re Here To Help You Get Ready

If you have any LTPT employees who are eligible as of January 1, 2024, be sure to send them the standard enrollment materials, the Summary Plan Description (SPD) and any required plan notices such as Safe Harbor notices and Auto-Enrollment notices (if applicable).

Not sure who might be eligible? Review the examples above and your plan’s minimum eligibility service rules to determine who may be eligible. If you’re unsure, reach out. We’re here to help.