Long-term, part-time employees (LTPT)

What a long-term, part-time employee is

The SECURE Act of 2019 required 401(k) plans to let employees defer once they had three consecutive 12-month periods with at least 500 hours of service. The SECURE 2.0 Act cut that to two consecutive periods for plan years beginning after December 31, 2024, and extended the rule to 403(b) plans covered by ERISA. The employee must also be at least 21. Periods before 2021 do not count toward eligibility in a 401(k).

Why it matters to employers

The rule only gives these employees the right to make their own deferrals. You do not have to give them a match or other employer contributions, and you can leave them out of nondiscrimination, coverage and top-heavy testing. If you do contribute for them, each year with 500 or more hours counts toward vesting. In practice you need hours records for every part-time employee.

Example

A retail employee over 21 works 600 hours in 2024 and 650 hours in 2025. She has never reached 1,000 hours, so she is not eligible under the plan’s regular rule. As a long-term, part-time employee she must be allowed to start deferring in 2026.

Common mistakes

• Excluding “part-time employees” as a class in the plan document. Service-based exclusions like that do not override the rule.

• Not tracking hours for employees who work under 1,000 a year.

• Assuming these employees must receive the match, or forgetting their vesting credit if they do.