The SECURE Act in 2019 and SECURE 2.0 Act in 2022 expanded the availability of employer-sponsored retirement plans for long-term part-time (LTPT) employees, which we have covered in previous posts here and here. These new statutory requirements generally become effective January 1, 2024, for 401(k) plans and January 1, 2025, for 403(b) plans. On November 24, 2023, the IRS published proposed regulations implementing the SECURE Acts’ changes.
The new rules define LTPT employees as employees who become eligible for a plan solely because of the statutory LTPT service rules (i.e., working at least 500 hours of service in the applicable number of consecutive 12-month periods). This means that plans with more generous eligibility provisions, like immediate entry, will not have any LTPT employees. The proposed regulations clarify that hours equivalencies may be used to determine LTPT status and note that due to existing law, plans using elapsed time to count service for all employees will not be subject to the LTPT rules. LTPT employees also have special vesting provisions that will continue to apply, even if they later become full-time employees.
The proposed regulations clarify some provisions and leave open questions on others. The comment period on the proposed regulations is currently open. The American Retirement Association has requested that the IRS delay application and enforcement of the regulations due to the inability of employers and service providers to implement the proposed regulations with less than 25 business days’ notice. So far, the IRS has not responded.
We will continue to provide updates on this developing law. If you have any questions about LTPT employee rules apply to your plan, please contact a Boutwell Fay attorney.