Under the SECURE Act, Who Will Be Classified as a Long-term Part-time Employee (LTPT)?

Under the SECURE Act, the term long-term part-time employee or LTPT is any employee who, in each of the last three consecutive years (long-term), worked at least 500 but less than 999 hours (part-time).

Effective for plan years beginning in 2024, 401(k) plans must allow LTPT employees to make Salary Deferrals into a 401(k) Plan.

• Employees who become eligible for elective deferrals under the new rule can still be excluded from other types of contributions (for example, employer matching or non-elective contributions) until they meet the plan’s eligibility requirements.
• If employers do make contributions to LTPT employees, their vesting in these contributions must increase once they work 500 or more hours each year.
• Only service starting in 2021 and after is taken into account for the 3-year eligibility and vesting.
• For nondiscrimination testing and other compliance tests, employers can exclude any long-term part-time employee who becomes eligible until the employee meets the plan’s eligibility requirements for testing.

Effective for plan years beginning in 2025, SECURE 2.0 amended the original SECURE Act in the following ways:

• 401(k) plans – the eligibility wait time for LTPT employees is shortened from three consecutive years to two years if the employee is at least 21 years of age.
• Service before 2021 is still excluded for purposes of eligibility and vesting.