The SECURE 2.0 Act continues to explore the implications of the LTPT employee rules and the impact these rules have on employers and their employees.
The SECURE 2.0 Act continues to explore the implications of the LTPT employee rules and the impact these rules have on employers and their employees. The Act’s mandatory provisions focus on expanding eligibility to long-term part-time employees. Employers must now offer their employees who work at least 500 hours within three consecutive 12-month periods to make elective deferrals to their 401(k) plan.
Effective in 2024, 401(k) plans must allow long-term part-time employees to contribute to their employers 401(k) Plan. This new rule modifies employers to exclude employees from participation until eligibility was met at 1000 hours of service.
Effective in 2025, eligibility for long-term part-time employees is shortened from three consecutive years to two years if the employee is at least 21 years of age (eligibility and vesting service prior to 2023 are excluded). 403(b) plans are now included.
While this evolution is positive in terms of assisting many more employees to save for retirement and increase retirement readiness, it also increases the administrative burden on plan sponsors. The new rule has employers questioning how to track actual hours to make certain they are in compliance with the IRS.
Long-Term, Part-Time Employee...That is the question.
It has been common practice in many industries with part-time employees and high turnover to exclude part-time employees from being eligible to participate in their employer's retirement plan. Employers should review their plan to see how the service requirement is currently stated. Plan sponsors should do their due diligence with their current service providers. We can assist you with this task at Alliance Retirement Plan Solutions.
Proactive Approach
Review employee records, plan design, and recordkeeping system capabilities to ensure readiness for the new rules currently in place. Most importantly, plan sponsors must keep up-to-date records of all part-time and full-time employees and share this data with their third-party administrator, recordkeeper, and payroll provider.
Larger businesses that have efficient employee data systems in place may not find the new rules to be quite as burdensome. Reports can be compiled to identify the long-term part-time employees.
Smaller businesses make up a significant portion of the American workforce. Identifying long-term, part-time employees and tracking time worked and eligibility may not be as straightforward and is often an arduous task.
The reality is that unless there is a finite time established for an employee’s period of work in a company, many part-time employees may now be considered potential long-term part-time employees.
Some plan sponsors may not fully understand this, and retroactively, there may be issues in future audits if this population has not been served via the offering of retirement plan participation.
Employers now need to work with the assumption that that employee, even if they just work for the summer, could potentially be a long-term part-time employee. They may not end up being a long-term part-time employee, but they have to be treated as if they might be. The burden is on the employer to keep accurate records and provide ready retirement plan access.
Employer contributions may be required, depending on the provisions of the plan document.
Plan sponsors should evaluate whether changes are needed to their plan documents or administration to comply with this long-term part-time provision.
In addition, some plans may now end up in the larger employer Form 5500 reporting category in 2024 or later due to the participation of this newly included employee segment. As a result, they may also need an independent plan audit for the first time.
Alliance Retirement Plan Solutions Is Here To Help
Coordinating with retirement plan providers and Third-party administrators such as Alliance RPS as well as payroll providers to assist you with keeping accurate records and effectively implementing this new rule will be key. Undoubtedly, due to this significant imposed rule for plan sponsors and their long-term part-time employee base, there will be administrative issues to work through.
The Alliance Team
(860) 777-4015
(860) RPS-401K
FAX (269) 324-3834
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