Navigating Long-Term Part-Time Employee Eligibility for 401(k) and 403(b) Plans
Written by Jeremiah “JP” Perryman, QKA on March 27, 2024
Planning for retirement is a vital aspect of financial management, and employer-sponsored retirement plans, such as 401(k) and 403(b) plans, offer valuable opportunities for employees to save for their future. Historically, these plans have primarily been accessible to full-time employees, leaving part-time workers at a disadvantage. However, recent legislative changes have extended eligibility to “Long-Term Part-Time” employees, providing them with a path to secure their retirement.
Legislative Changes: SECURE Act and SECURE 2.0 Act
The SECURE Act initiated the rules for Long-Term Part-Time employee eligibility, aiming to broaden access to retirement plans. Subsequently, the SECURE 2.0 Act further decreased the qualifying period from three consecutive years to two consecutive years and extended it to include 403(b) plans, enhancing retirement security for a broader range of workers.
Defining Long-Term Part-Time Employees
A Long-Term Part-Time (LTPT) employee is an individual aged 21 or older by their last year of reaching the service requirement, which is having worked between 500 and 999 hours in a year for three consecutive years for 401(k) plans. Service prior to January 1, 2021 is not counted. As a result, many LTPT employees became eligible to participate in 401(k) plan on January 1, 2024. This requirement is being reduced to two years starting the first plan day of 2025. For 403(b) plans, the requirement is two years starting with the first plan day of 2025.
Entry Dates and Employer Contributions
LTPT employees are only required to be allowed into the plan on the first of the first and seventh months of the plan year unless the employer opts for a more frequent entry schedule. Even if your plan has more liberal entry dates for regular plan participants, you may still apply the first and seventh months entry dates for LTPT employees. Unlike regular participants, LTPT employees are not automatically eligible for employer contributions unless the employer chooses to provide them.
Continuous Eligibility and Transition to Regular Participation
Once an employee becomes a LTPT employee, they maintain eligibility for plan participation as an LTPT, irrespective of subsequent years with fewer than 500 hours of service. However, LTPT employees can transition to regular participant status upon meeting the plan’s eligibility criteria for employer contributions.
Addressing Missed Opportunities
If you believe that your employer may have inadvertently missed allowing long-term part-time employees to participate in the plan, it’s essential to reach out to the analyst assigned to your plan promptly. They can provide guidance on rectifying the situation and ensuring that all eligible employees have the opportunity to save for retirement effectively.
In conclusion, the expansion of eligibility criteria for 401(k) and 403(b) plans to include LTPT employees represents a significant step towards promoting retirement security for all workers. By understanding the nuances of eligibility requirements and legislative changes, employees can take proactive steps to maximize their retirement savings and secure their financial future.
JP Perryman, QKA
Jeremiah “JP” Perryman, QKA is the Compliance and Operations Manager at Benefits² Administrators. He has more than 15 years of experience working with qualified retirement plans.