Earlier this year, ACSI shared an article about the new requirement to allow certain “long-term, part-time” (LTPT) employees to make their own 401(k) or 403(b) Plan contributions. Please see https://acsi-ny.com/your-401k-or-403b-plan-may-soon-be-required-to-include-more-employees/. These LTPT employees, who otherwise do not satisfy the Plan’s eligibility waiting period requirement, are only required to be eligible for employee contributions. More restrictive eligibility conditions for employer contributions continue to apply.
The IRS issued proposed regulations on “Black Friday” that clarified many of the questions about the LTPT law. One thing made clear is that employers may have to evaluate some employees’ eligibility twice, once under the Plan’s eligibility waiting period rules and, if not eligible, then under the LTPT rules.
Depending upon the makeup of an employer’s workforce, the process of determining eligibility and the risk of mistake may justify changing eligibility for employee deferrals to reduce the hours requirement. Designing a Plan to be less restrictive may eliminate the need to monitor the LTPT rules. For example, a Plan that currently requires 1,000 hours of service in a 12-month period could be changed to require 500 hours in a 12-month period. This change can be limited to the employee contributions, so that eligibility for employer contributions (e.g., match, profit sharing) continues to be based on 1,000 hours.
There also are special relaxed vesting rules that apply to LTPT employees if they eventually qualify for employer contributions.
For these reasons, among others, consideration should be given to Plan design changes to avoid having any LTPT employees.
If, however, compliance with the LTPT rules is necessary for your Plan, it is critical to understand how the rules operate beginning in 2024 and how the rules change in 2025.
Please contact ACSI (www.acsi-ny.com) to learn more about the LTPT requirements, or how ACSI can help you identify LTPT employees for your Plan.
