The Internal Revenue Service (IRS) has released a proposed regulation reflecting statutory changes related to longterm, part-time (LTPT) employees made by the SECURE Act of 2019 (SECURE Act) and the SECURE 2.0 Act of 2022 (SECURE 2.0). This proposed regulation would amend Treasury Regulation (Treas. Reg.) 1.401(k)-5 to reflect the rules for LTPT employees, including specific eligibility and vesting requirements. The proposed regulation also provides guidance regarding employer contributions with respect to LTPT employees and the impact that LTPT employees will have on nondiscrimination, coverage testing and top-heavy benefits. Background Historically, employers could design their 401(k) plans to prevent part-time workers from entering a plan by requiring employees to be credited with at least 1,000 hours during a plan year in order to become eligible to participate. In 2019, the SECURE Act changed the eligibility requirements so that LTPT employees who are credited with at least 500 hours in three consecutive years must be allowed to participate under a 401(k) plan’s salary deferral provision. In 2022, SECURE 2.0 reduced the wait from three years to two, effective for plan years that begin after Dec. 31, 2024, and expanded applicability to ERISA-covered 403(b) plans. This proposed regulation provides answers to some of the open questions regarding the administration of LTPT employees and paves the way for new plan design concepts. The highlights of the proposed regulation are described below. Definitions The proposed regulation provides clarity on the criteria that need to be met in order for an employee to be considered a LTPT employee and also defines a new classification identified as former LTPT employees. • LTPT Employee: Under this proposed regulation, a LTPT employee is defined as an employee who is eligible to participate in a plan solely by reason of o being credited with at least 500 hours of service during each of two consecutive 12-month periods (three consecutive 12-month periods for plan years beginning before 2025); and o attaining age 21 by the close of the last of the consecutive 12-month periods. IRS ISSUES PROPOSED LONG-TERM, PART-TIME REGULATIONS BY ASCENSUS 16 In Touch
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