- September 2, 2025
The “long term part-time employee” (“LTPT(s)”) rules. As we approach the conclusion of two full calendar years during which some version of the LTPT rules have been effective, reciting the term LTPT should no longer generate surprise or confusion. Instead, all retirement plan sponsors and service providers should now be fully aware of these rules and how they operate. Regardless, some may only now be first experiencing the need to implement these rules and, of course, a general review of existing practices is always valuable too. Consequently, the following is a brief summary of the current form of the LTPT rules in to order to attempt to ensure that everyone understands these requirements.
The LTPT rules were initially effective in 2024 as implemented under certain provisions of the Setting Every Community Up for Retirement Enhancement (“SECURE”) Act. Subsequent legislation commonly referred to as “SECURE 2.0” then modified and expanded the LTPT rules effective in 2025. In their current form, the LTPT rules require that employees with at least 500 hours of service in two consecutive 12-month periods be permitted to make elective deferrals under a 401(k) or 403(b) defined contribution plan. This rule only applies to a plan’s service eligibility provisions and leaves the age eligibility requirements and provisions unchanged.
To be clear, the LTPT rule only impacts when a part-time employee must be allowed to make elective deferral contributions. Thus, plan sponsors retain the ability to restrict eligibility for employer funded contributions like a match or non-elective contribution until employees satisfy a more restrictive “one year of service” requirement (1,000 hours within a 12-month period). In addition, the LTPTs who are allowed to defer into the plan generally are excluded from the nondiscrimination, minimum participation, top-heavy and coverage requirements that might apply. Therefore, the ability of the LTPTs to defer as a result of this exception doesn’t hurt the plan sponsor due to any otherwise applicable mandatory compliance testing requirement.
As mentioned above, the LTPT rules also extend to 403(b) plans. However, 403(b) plans were already subject to the “universal availability” requirement meaning that, in general, 403(b) plan sponsors already had to offer the ability to defer to all of their employees without imposing any service eligibility restrictions whatsoever. Thus, the extension of the LTPT rules to 403(b) plans left many plan sponsors and industry practitioners with questions. Fortunately, the Internal Revenue Service (“IRS”) answered some of these questions with additional guidance released late in 2024 (“IRS Guidance”).
First, the IRS Guidance clarified that the LTPT rules only apply to 403(b) plans that are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Thus, “non-ERISA” 403(b) plans are not required to follow the LTPT rules.
Second, the IRS Guidance explained how the LTPT rules would interact with a 403(b) plan sponsor’s existing ability to exclude certain employee classifications from participating in such plan. As you may be aware, one statutory exception to universal availability allowed 403(b) plan sponsors to exclude individuals who normally worked fewer than 20 hours per week from making elective deferrals. However, without additional guidance, it appears that electing this exclusion could eliminate the impact of the LTPT rules in their entirety. Consequently, the IRS Guidance addressed this inherent conflict and stated that the exclusion could continue to be used so long as anyone who eventually qualified as a LTPT was allowed to defer. In other words, the class exclusion can continue to be elected and exclude individuals who normally work fewer than 20 hours per week from making deferrals until the point at which they have completed two consecutive years with at least 500 hours of service.
The IRS Guidance also directly addressed another 403(b) employee class exclusion that operates as an exception to universal availability. More specifically, it addressed the student employee exclusion. With respect to the student employee exclusion, the IRS indicated that those individuals would not be subject to the LTPT rules. Thus, the student employee exclusion can continue to operate in the same fashion that it did prior to the creation of the LTPT rules.
We hope that this article helped you to better understand this topic and encouraged plan sponsors to operate their plans in compliance with the new law. However, this article is not intended to serve as financial, tax or legal advice so it should not be construed as such. If you have questions about this topic, we strongly urge you to further discuss it with a qualified retirement plan professional. For more information about this topic, please contact our marketing department at 484-483-1044 or your administrator at Legacy.