The rules of 401(k) plan eligibility for Long-Term Part-Time employees (LTPT) have significantly changed. This is a result of the SECURE Act of 2019 and SECURE Act 2.0 of 2022. The new rules took effect at the beginning of 2024 and have widened the circle of eligible 401(k) plan participants for many employers. This includes part-time employees on their payroll.
To stay compliant, employers are required to closely scrutinize, and perhaps modify, how payroll and labor hours are tracked. Under the old rules, employees who completed one full year of employment (~1,000 hours of service) were eligible to participate in a 401(k) plan.
401(k) Plan Updates for LTPT Employees
As of January 2024, part-time employees over 21 who work for at least 500 hours over three consecutive years are permitted to contribute to a 401(k). Beginning in 2025, the consecutive annual requirement drops to over two years.
While the rule change will affect many employers, certain exclusions from LTPT qualification do apply. These include:
- Employees covered by a collective bargaining agreement.
- Non-resident aliens who receive no US sourced earned income.
The rules related to employer contributions have not changed. Though free to do so, employers aren’t required to make employer contributions through matching or non-elective contributions for LTPT employees.
Questions?
Need information on whether any of your employees qualify as LTPT, when they become eligible to participate in your 401(k) plan, or related reporting requirements? Call us at (401) 921-2000 or fill out our contact form.