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It’s About Time – Long Term, Part Time Employees – Part 1

Adam C. Pozek 11/27/23


At long last, the Treasury Department (home of the IRS) issued proposed regulations on Black Friday that provide guidance on how to apply the looming long-term, part-time employee (LTPT – yay, yet another acronym) rules first introduced by the SECURE Act.  In short, the new LTPT rules say that companies who sponsor 401(k) or 403(b) plans must allow those employees who work at least 500 hours a year over several consecutive years to at least make deferrals to the plan.  Oh, that it was as simple as it sounds.

We doubt Treasury had Charles Dickens in mind, but we seem to have a nod to all 3 ghosts:

  • SECURE was enacted December 20, 2019 (Ghost of Christmas Past);
  • The regs were issued on the unofficial start of the holiday shopping season (Ghost of Christmas Present); and
  • They provide guidance that applies starting in a mere 5 weeks (Ghost of Christmas Future).

Ok, that last one is technically after the holiday season, but keeping track of these new rules will be a ghostly task that is yet to come.

There is quite a bit to unwrap…er…unpack in these regulations, so we are going to split our coverage into two posts.  This one focuses on determining who long-term, part-time employees are and when they become eligible for the plan.  Part 2 focuses on other related matters such as contributions, vesting, etc.

Hang on!  We already allow employees who work fewer than 500 hours per year to defer.  Does this new rule impact us?

That is a definite “no” so you can now do something more interesting with your time rather than reading the rest of this post.  Similarly, if you use the elapsed time method of determining eligibility for all of your employees, you also don’t have to worry about this rule.  Aren’t you glad we started with this question?!

What is a long-term, part-time employee?

As mentioned above, a LTPT employee is one who is at least age 21 and who completes at least 3 consecutive years of service in which s/he works at least 500 hours.  We can ignore all plan years that started prior to January 1, 2021, so the earliest date that an employee can join the plan under this rule is January 1, 2024.  To make things slightly more complicated for the first couple of years, the requirement drops to 2 consecutive years starting in 2025.

Here are a few quick examples.


  • Hired in 2021
  • Works at least 500 hours per year in 2021, 2022, and 2023
  • Allowed to defer as of January 1, 2024


  • Hired in 2019
  • Works at least 500 hours per year each year through 2023
  • Allowed to defer on January 1, 2024 (ignore all years prior to 2021)


  • Hired in 2022
  • Works 500 hours per year in 2022, 2023, and 2024
  • Allowed to defer as of January 1, 2025


  • Hired in 2023
  • Works 500 hours per year in 2023 and 2024
  • Allowed to defer as of January 1, 2025 (the first year the requirement drops from 3 consecutive years to only 2)
Can we count years prior to 2021 for this purpose?

Nope.  The rules make it clear that all plan years that start before January 1, 2021, must be disregarded when determining who counts as a LTPT employee.

What is considered a “year” for determining eligibility here?

Thankfully, the rules are the same for LTPT as for other eligibility questions.  The first year we look at is the employee’s anniversary year, i.e. from date of hire to the first anniversary.  After that, plans have the option to stick with anniversary years or switch to plan years.  Since continuing with anniversary years creates a different review period for every employee, many companies choose to move to the plan year. 

Here is how that works:

Jacob is hired July 7, 2021.

  • Eligibility Computation Period #1: July 7, 2021 through July 6, 2022
  • Eligibility Computation Period #2: January 1, 2022 through December 31, 2022
  • Subsequent Eligibility Computation Periods: January 1 – December 31

There are a few months that overlap and get counted in both the first and second years, but that is the price for the simplicity of aligning everything to the plan year.  We have a full post here that explains this in more detail.

What if an employee’s work schedule fluctuates from year to year?

To initially become eligible as a LTPT employee, that individual must meet the 500-hour requirement in consecutive years.  Let’s return to our friend Bob from the earlier example.


  • Hired in 2023
  • Works 500 hours in 2023 and 400 hours in 2024
  • The clock resets in 2024, because Bob dropped below the 500-hour threshold.
  • Assuming he works at least 500 hours in both 2025 and 2026, Bob would be eligible to defer in 2027.

However, once a participant joins the plan as a LTPT employee, s/he can drop below 500 hours in a future year without getting kicked out of the plan.

We use an equivalency to credit hours of service in our plan rather than counting actual hours.  Can we continue to do that here?

The equivalency method credits a set number of hours for each day, week, or month an employee works regardless of their actual hours.  The proposed regulations allow the use of an equivalency to determine who is a LTPT employee, in lieu of counting actual hours.

Our plan excludes certain classifications of employees.  Do we now have to allow those employees to join the plan if they meet the LTPT requirements?

Nope.  As long as that exclusion is otherwise allowable, you can continue to apply it to those who would otherwise join as LTPT employees.  Since union members and non-resident aliens can already be excluded from plans without triggering any special testing requirements, they can be excluded for this purpose.

When it comes to other excluded classes, it is important that they are not “disguised” service conditions.  For example, it is not possible to exclude “seasonal” employees, because that would effectively be excluding someone based on how long they work.  That type of exclusion is not permitted for “regular” employees, so it is also not allowed for LTPT employees.  However, excluding groundskeepers is generally allowable since it excludes based on the type (not the amount) of work.

For more details on allowable exclusions, check here.

Once an employee meets the LTPT service requirement, when does s/he actually join the plan?

The entry dates cannot be any less frequent than the first day of the plan year and 6 months later.  That would be January 1st and July 1st for a calendar year plan.  However, for all practical purposes, plans that switch to the plan year for their eligibility computation periods (see above) will have LTPT employees pretty much always entering on January 1st of the year following completion of the service requirement.

How do we handle this for short-service employees who quit and then come back to work?

Rehires are often a challenge, but they are a little easier to handle here.  When determining initial eligibility as a LTPT employee, the rules do not require continuous employment…only that the individual work at least 500 hours in 3 consecutive years.  That means an employee who comes and goes could still be a LTPT employee as long as s/he meets that hours requirement.

An employee who terminates employment after already joining the plan under the LTPT rules, would re-enter the plan as LTPT immediately as of the date s/he comes back to work.

What happens if someone who starts out as LTPT eventually meets our plan’s “regular” eligibility requirements?

The rules say that an employee ceases to be LTPT (and generally a regular participant) as of the first day of the plan year after satisfying the maximum allowable waiting period, which is one year of service (1,000 hours worked during a 12-month eligibility computation period).  They use some really creative naming here.  These employees who used to be LTPT are called…wait for it…drum roll please…former long-term, part-time employees.

That’s all for Part 1.  Check out the second post in this series to read more about what to do with LTPT employees once you’ve identified them.

For more information, please visit our SECURE 2.0 Act Resource Page.

Topics: 401(k) Plan, 403(b), Legislation, Plan Eligibility, Regulations, SECURE Act, ADP/ACP Tests, SECURE 2.0, Long-Term, Part-Time


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The views expressed in this blog are those of the authors and do not necessarily represent the views of any other person or organization. All content is provided for informational purposes only and is not intended to be tax or legal advice.