In December 2019, Congress passed the SECURE Act which included a provision regarding Long-Term, Part-Time (LTPT) Employees and their eligibility for company-sponsored retirement plans. This legislation – aimed at boosting retirement savings for part-time workers - allows for LTPT Employees to defer their compensation into the 401(k) plan, even though they have not yet met the plan’s eligibility requirements.
What is a Long-Term, Part-Time (LTPT) Employee?
Effective 1/1/24, an LTPT Employee is one that has not yet met your 401(k) plan’s eligibility requirements but has worked at least 500 hours for 3 consecutive years. Effective 1/1/25, this is reduced to 500 hours for 2 consecutive years.
How is my plan affected by the SECURE Act?
Any employees that are not currently eligible for the 401(k) plan but satisfy the definition of a LTPT Employee must be allowed to defer their compensation into the plan as elective deferrals starting 1/1/24.
Do LTPT Employees need to receive employer match, Safe Harbor, or profit sharing contributions?
No - LTPT Employees are not required to receive employer contributions and do not impact the plan’s discrimination testing.
What action is required?
Carefully review your current staff to see if you have any employees that meet the definition of a Long-Term, Part-Time Employee. Any employees that are already eligible to participate in the plan are unaffected. If you have any LTPT Employees, you must ensure they are given the opportunity to defer their compensation into the plan as elective deferrals starting 1/1/24.