Long Term Part Time Employee FAQs

This pertains to all 401k plans.  As mentioned above, only plans that currently offer a more lenient eligibility plan will not be impacted, as they are already allowing these types of employees into the plan.

The first year 403b plans must allow an LTPTE to enter the plan is 2025 and will be look back of two consecutive 12 months periods with more than 500 hours in each. 

You simply must look back at the past three years and determine if you have any employees that meet this definition and if you do, you must allow them access to the plan for salary deferral purposes. 

A LTPTE is an employee who is at least age 21 and who completes at least 3 consecutive years of service in which they work at least 500 hours.  Years of service before January 1, 2021 will not factor into this calculation. Therefore the earliest date that an employee can join a calendar year plan under this new rule is January 1, 2024. 

Example:  If Tom works 500 hours in 2021 and 500 hours in 2022 and 500 hours in 2023, then Tom is eligible to defer into the 401k plan on January 1, 2024.

The rules are the same as normal retirement plan eligibility rules. In determining the first year, you look at the anniversary year of the employee (date of hire to anniversary date).  After that first year, you can choose to stay with the anniversary method or switch to plan years.  For simplicity, most employers will move to plan year type of calculation. 

Example:  Julie is hired on August 4, 2021.  Eligibility Calculation Period 1: August 4, 2021 to August 4th, 2022. Eligibility Calculation Period 2: January 1, 2022 to December 31, 2022.  Eligibility Calculation Period 3: January 1, 2023 to December 31, 2023.

Yes, in the above method you end up overlapping some months in years one and two.  Both this method allows the Employer to avoid having each individual employee on different review period.

The entry dates cannot be any less frequent than the first day of the plan year and 6 months later. (January 1 and July 1 for calendar year plans). Most plans will switch to the plan year for eligibility and therefore will use January 1st as the entry date after the participant meets the service requirement. 

No, the rule only requires you to allow them to defer their own salary deferrals into the plan.  You can always decide to include them if you wish, you are not required to. 

Not currently, there is no action required to amend your plan to include these new rules.  In the future, there will be SECURE Act amendments that add new language to your document.  Plan Design Consultants will create these for you when necessary. 

They become a regular plan participant and are no longer a LTPTE.  We refer to them as a Former Long Term Part Time Employee.  The main different now will be the vesting calculations discussed below.

LTPTE only have to work 500 hours in a year to receive a credit for one year of vesting. Even if your plan has other/different vesting rules for regular plan participants.  Here is the tricky part: if an employee becomes eligible for the plan as an LTPTE and then later meets the eligibility to become a regular plan participant, they will always remain on this 500 hour vesting requirement, even though they are now a regular plan participant. 

Many plans exclude Union Members and Non-Resident Aliens, and they can continue to exclude them from the LTPTE rules.  Other excluded classes can also remain in place and not have the LTPTE rules apply, however it should be mentioned that these exclusions cannot be “disguised” service condition, meaning the job class exclusion can not be a proxy for imposing an impermissible age or service requirement. 

Not sure why the Government did this, as it adds complications but these rules change slightly in 2025.  The requirement for LTPTE drops from 3 consecutive years to 2 consecutive years.