SECURE 2.0 Provision: Tracking Long-Term, Part-time Employees

SECURE 2.0 reduces the eligibility requirement from three years to two years and retains the 500 hours of service threshold. SECURE 2.0 also expands the long-term, part-time (LTPT) rule to apply to 403(b) plans covered by ERISA. 403(b) plans are already required to offer access to most employees through the universal availability rule, so additional guidance is needed to understand how the two rules operate.

Many 403(b) plans exclude certain classes of employees, such as universities excluding student employees. As written, it appears the LTPT rules would apply to excluded categories of employees. 403(b) sponsors should begin tracking the hours of service of all employees in 2023 if they are allowed to participate in 2025. The SECURE Act passed in 2019 included a provision to require plans to allow long-term/part-time (LTPT) employees to make voluntary contributions.

The rule applied to 401(k) plans, and tracking was required to begin in 2021. Employees who work at least 500 hours in three consecutive 12-month periods must be allowed to make contributions. Therefore, the first LTPT employees will be eligible in 2024. While they will be eligible to make employee contributions, these individuals do not have to receive any employer contributions. Also, these LTPT employees can be excluded from non-discrimination testing.

Employers should begin tracking hours for part-time employees beginning in 2021 for 401(k) plans and 2023 for 403(b) plans. This likely requires tracking hours in the payroll system and transmitting information to a recordkeeper or third-party administrator. Employers will also need to have a process to notify these LTPT employees once they are eligible to contribute. If an employer is concerned about accurately tracking the hours over several years, they could consider allowing elective deferrals for all employees immediately. Another option would be to make them eligible after one year of service and 500 hours which would only require tracking for the first year of employment. However, changes in eligibility may impact non-discrimination testing.

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