LTPT employees do not include employees described in Internal Revenue Code Section (IRC Sec.) 410(b)(3), including union employees and employees who are nonresident aliens with no United States source income. If an employee becomes eligible to participate in the plan under any other service condition (or lack thereof), the employee is not a LTPT employee. For example, if a newly hired employee is immediately eligible to participate in the plan for deferral purposes, she will not be considered to meet the definition of a LTPT employee. Similarly, an employee who becomes eligible to participate using the elapsed time method would not be considered a LTPT employee because the individual would not have met the service requirement solely by completing the applicable number of consecutive 12-month periods during which the employee is credited with at least 500 hours of service. • Former LTPT Employees: This proposed regulation also defines a former LTPT employee. A LTPT employee will become a former LTPT employee as of the first day of the plan year beginning after the earlier of o the plan year in which the employee is credited with at least 1,000 hours during a 12-month period; or o the plan year in which the employee becomes an ineligible employee (due to an eligibility requirement other than age or service). Eligibility and Participation Criteria • Determining Eligibility Service: The proposed regulations generally leverage existing rules for determining LTPT employees, including the methods for counting hours and determining the 12-month periods during which hours must be counted. o Equivalency Method: In addition to counting actual hours, the proposed regulation will permit employers to use an otherwise permissible equivalency method to determine if an employee is credited with at least 500 hours of service during the applicable number of consecutive 12-month periods. The hours of service credited will not be affected by an employer classifying an employee as part-time. For purposes of LTPT eligibility, the IRS did not choose to reduce the number of hours that normally would be credited to an employee under the applicable equivalency method. o Eligibility Computation Periods: All computation periods beginning on or after Jan. 1, 2021, must be considered when determining if an employee has completed the LTPT service requirements. The initial eligibility computation period begins on the employee’s date of hire and ends on the anniversary date of the date of hire. Subsequent eligibility computation periods may continue as the anniversary date of hire or may switch to the plan year depending on the terms of the plan, which may result in overlapping eligibility computation periods. • Class Exclusions: The proposed regulation confirms that certain classes of employees may continue to be excluded from participation in the plan, notwithstanding the LTPT requirements, so long as the class exclusions are not a proxy for imposing an age or service requirement that forces an employee to complete a period of service that extends beyond the earlier of o age 21 and one year of service; or o the applicable number of consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service. • LTPT Entry Dates: A LTPT employee must be permitted to enter the plan under the same entry date rules that apply to all other eligible employees. This means a LTPT employee must be permitted to enter the plan the earlier of o the first day of the first plan year beginning after the date the employee satisfies the eligibility requirements; or o six months after the date the employee satisfies the eligibility requirements. • Break in Service Rules: The proposed regulation does not include any provision similar to existing eligibility break in service rules. Therefore, once an employee becomes eligible under the LTPT provisions, the completion of any 12-month period where she is credited with fewer than 500 hours does not affect her LTPT eligibility. In addition, if a LTPT employee terminates service and is rehired by the employer maintaining the plan, then the employer must take into account the previous 12-month periods during which she was credited with at least 500 hours for purposes of whether they are eligible to participate. • Deferral Restrictions for Non-HCEs: In order to give effect to the statute, the proposed regulation limits the ability to impose restrictions on the right to make deferral contributions by a LTPT employee who is an eligible non-highly compensated employee (non-HCE). The right to make deferral contributions cannot be restricted in any manner that would not be permitted for a non-HCE under a safe harbor plan. Therefore, the permissible restrictions are limited to o restrictions on election periods; o the amount of deferral contributions; o the types of compensation that may be deferred; and o limitations under the IRC (e.g., 402(g) and 415 annual additions limits). Vesting Service Regulations The proposed regulation would require employers to credit LTPT and former LTPT employees with one year of vesting service for each year that an individual is credited with at least 500 hours during a 12-month vesting computation period. Therefore, former LTPT employees will continue to be credited with vesting service under the LTPT vesting provisions, necessitating separate tracking of such participants for vesting purposes. Employer Contributions for LTPT Employees The proposed regulation stipulates that — except in the case of a SIMPLE 401(k) plan — employers are not required to provide nonelective and matching contributions to LTPT employees. This applies even if the employer makes contributions on behalf of other eligible employees. An employer that wishes to 17 In Touch
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