Long-Term Part-Time Employee Qualifications

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 have paved the way for part-time employees to gain access to their employer’s 401(k) plan. These employees, known as long-term part-time (LTPT) workers, have worked at least 500 hours in three consecutive years. As a result, the SECURE Act amended the rules for 401(k) plans to make long-term part-time employees eligible to make elective deferrals in their plans. This new requirement also exempts them from most of the coverage, top-heavy and nondiscrimination testing rules.

The SECURE Act of 2019 reshaped the 401(k) landscape by expanding plan eligibility to part-time employees. Previously, the most eligible worker could only contribute if they were classified as full-time and worked at least 1,000 hours per year. The SECURE Act changed that by introducing a new category of long-term part-time employees dubbed LTPTs. It also allowed for the first time in the 401(k) business that employers would have the ability to set up a hybrid 401(k)/401(a) plan. Using these new plans isn’t a walk in the park, but it is an opportunity that every employer should take advantage of. Fortunately, most employers will be better armed with the knowledge they need to make this transition as smoothly as possible. With luck and a little preparation, the new LTPTs can look forward to an exciting future.

Generally, qualified plans require a minimum of 1,000 hours of service in a 12-month period. To increase access to 401(k) and similar plans, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) expanded eligibility requirements to include long-term part-time employees. The SECURE Act modified the minimum age and service conditions to mandate that part-time employees who earn at least 500 hours of service in each of three consecutive 12-month periods be offered the opportunity to enroll in a 401(k) plan and make salary deferrals. Effective January 1, 2021, these employees must be tracked to determine their eligibility. The clock starts running, and if a long-term part-time employee is not given the chance to participate in a 401(k) plan, the employer may disregard the years prior to 2021. This rule applies to 401(k) and 403(b) elective deferrals, as well as employer contributions. However, it does not affect plans that are not subject to the universal availability rule, which prohibits excluding employees who work less than 1,000 hours in a plan year.

Part-time employees can be a valuable addition to your workforce. They may be more loyal to your company, and they’ll appreciate some of the perks that can set you apart from competitors who don’t offer them. Many small-business owners find that it’s easier to hire and retain employees if they offer a benefits package. These can include health insurance, 401(k) retirement plans, and other benefits. When offering benefits to your part-time employees, it’s important to keep in mind state and local laws, your insurance carrier, and other factors. For example, federal wage and hour law doesn’t require employees to receive premium pay for working holidays or weekends. Long-term part-time employees are generally eligible to participate in employee retirement plans. Depending on the Plan, long-term part-time employees must meet the yearly work amount of 1,000 hours to be eligible for benefits.