SECURE Act FAQs
Long-Term Part-Time Workers Provision
The SECURE Act of 2019 (“SECURE 1.0”) and the SECURE 2.0 Act (“SECURE 2.0”), which was signed into law in late 2022, made sweeping changes to the rules governing workplace savings plans, like 401(k)s and 403(b)s, including a provision related to long-term part-time (LTPT) workers. The latest provision will require retirement plans to enroll part-time workers after they work for a certain number of consecutive years.
While the basic parameters of the LTPT provisions have generally been understood, additional guidance from the Internal Revenue Service was needed to have a fuller sense of compliance responsibilities. In November 2023, the IRS issued proposed regulations addressing some of those questions.
The following is helpful information for plan sponsors about the LTPT provision and its impact on retirement plans in 2024 and beyond.
Frequently Asked Questions
- The LTPT provision is one of the changes from the SECURE Acts of 2019 and 2022 to the rules for 401(k)s and 403(b)s. The “long-term part-time” provision, or LTPT, will require plans to enroll part-time workers after they work for a certain number of consecutive years.
- While the basic parameters of the LTPT provisions have generally been understood, additional guidance from the Internal Revenue Service was needed to have a fuller sense of compliance responsibilities. On November 24, 2023, the IRS issued proposed regulations addressing some of those questions.
- In 2024, no formal plan amendment is needed for the long-term part-time worker provision, although the IRS proposed regulations will require plan amendments for safe harbor plans wishing to exclude LTPT workers from safe harbor employer contributions.
- 401(k) plan sponsors should consider whether to permit employer contributions to be made (either matching or non-elective) to these LTPT employees, and they should then document that decision.
- 403(b) plan sponsors are required to begin counting hours for LTPT employees who work 500+ hours a year in 2023, 2024 and 2025, at which point they can enroll those individuals into the plan.
- SECURE 1.0 required 401(k) plans to enroll employees who work at least 500 hours in three consecutive years. The first year in which an LTPT worker must be enrolled in a 401(k) plan under the SECURE 1.0 provision is 2024.
- SECURE 2.0 expanded eligibility to include 403(b) plans and required only two consecutive years of 500 hours per year to be considered an LTPT worker.
- IRS proposed regulations confirmed that the LTPT rules do not apply to plans that already cover part-time workers, non-resident aliens with no U.S.-source income, and collectively bargained employees. The LTPT rules also do not apply to employees who are not eligible for coverage under the plan based on rules other than service requirements.
- SECURE 1.0 permitted plans to disregard hours worked prior to 2021 only for determining eligibility for coverage. However, all hours worked from the date of hire were required to be counted for vesting.
- SECURE 2.0 retroactively changed that rule so that hours worked prior to 2021 can now be disregarded for eligibility and vesting purposes.
- IRS proposed regulations will require vesting to be credited to LTPT workers who work at least 500 hours per year. Once the LTPT workers become eligible, that vesting credit requirement will continue to apply, even if that individual works more than 1,000 hours in a year and would qualify as a full-time worker.
- If a plan includes an employer matching contribution or a non-elective contribution, the LTPT provision does not require those contributions to be made on behalf of part-time workers. This is true even if a plan is a safe harbor plan.
- SECURE 1.0 provided that LTPT employees are not counted when performing annual nondiscrimination tests.
- The IRS proposed regulations confirmed that employers may count LTPT employees, provided they make an election for each nondiscrimination test that will not apply to LTPT workers. The proposed regulations also require that safe harbor plans intending to exclude LTPT workers must be amended prior to the beginning of the plan year.
- Given that the proposed regulations may not be effective during 2024, or possibly, ever, there remain questions about how safe harbor plans should operate with respect to LTPT workers.
- Non-safe harbor plans do not need to be amended, but must include “enabling language,” which is an undefined term in the proposed regulations.
- Beginning January 1, 2024, compliance requires detailed payroll records for part-time workers and rehires.
- Employers can set varying eligibility criteria for LTPT employees, tailoring their plans to organizational needs.
- In 2024, plan sponsors are not required to have a plan amendment in place when beginning to enroll LTPT employees. A remedial amendment period gives plan sponsors until the end of 2025 to formally amend their plan.
- If a plan sponsor decides to exclude LTPT employees, or decides to exclude any employer contributions, they should consider documenting that decision. A formal plan amendment is not needed, but a decision should be documented. When the plan amendment comes due, plan sponsors will have that document to help avoid compliance issues.
- In 2024, plan sponsors with a current plan that doesn’t have a 1,000-hour requirement are not required to have an amendment. These LTPT employees will be enrolled in the plan and will be subject to all provisions in the existing plan.
- 2024 for 401(k): Plans active before 2021 follow a three-year rule, disregarding pre-2021 service for vesting. This shifts to a two-year rule from 2025.
- 2025 for 401(k) and 403(b): The two-year eligibility rule applies, disregarding service prior to 2023 for vesting. Employers decide on contributions and testing inclusion for LTPT employees.
- The IRS proposed regulations did not provide additional guidance surrounding 403(b)s. For instance, how the IRS will reconcile the rule from SECURE 2.0 with what’s known as the Universal Availability Rule, which already essentially requires plan sponsors to offer an enrollment opportunity to all employees, whether they’re full-time or part-time. The exception is if the plan sponsor takes advantage of a special rule under the Universal Availability Rule that allows them to exclude workers who normally work less than 20 hours per week.
- If plan sponsors do the latter, then there’s a conflict between how they will administer that rule and how they will have to administer this long-term part-time rule. The IRS is aware of this conflict and is expected to provide guidance.
If you are a plan sponsor, please visit our Office Locator Map to connect with the Mutual of America representative nearest to you who provides support for plan sponsors.