This chart will help you gain a better understanding of the employees who may become eligible under the new long-term, part-time (LTPT) rules under the SECURE Act.

Summary

• The Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) introduced new eligibility requirements generally effective for plan years on or after January 1, 2024.
• The change was designed to expand part-time employees’ access to their employer’s retirement plans.
• Before the SECURE Act, 401(k) plans could require employees to complete up to a Year of Service (i.e., work 1,000 hours in a 12-month period) before they could defer to the plan. This meant many part-time employees would never be able to make 401(k) contributions.
• The new rules provide that employees must also be allowed to make 401(k) contributions to the plan if they work three consecutive eligibility computation periods (“ECPs”), with at least 500 hours in each ECP.

Things to Note

1. Employee hours

• An employee must complete three consecutive eligibility computation periods (ECPs) with at least 500 hours but less than 1,000 hours of service in each of those periods. Only ECPs beginning on or after 1/1/2021 are counted.
• This means the first date by which employees can meet the LTPT three-year rule and become eligible to defer in their employer’s sponsored 401(k) plan is generally January 1, 2024. The table below outlines the eligibility requirements under the SECURE Act of 2019.

1. Eligibility computation period (ECP): An employee’s initial ECP always begins on their date of hire and ends on the day prior to their one-year anniversary. Subsequent ECPs are determined based on provisions in your plan document. There are two options:

• Shift to plan year calculation:

  • After the initial period, ECPs shift to plan years. An employee’s second ECP will begin on the first day of the plan year that includes their one-year anniversary date. Subsequent ECPs are the same as the plan year. For plan year calculations, refer to the Plan YTD Hours columns.

• Employment year calculation:

• After the initial period, ECPs will continue to occur with each subsequent anniversary year.
• For employment year calculations, refer to the Employment YTD Hours columns.

 2. Employee age

• Union employees
• Non-resident aliens
• A plan’s class exclusion that is not based on age or service (e.g., job category or location exclusions)

Common scenarios and actions required:

The eligibility service requirements below are the same for all three scenarios A-C

Scenario A: This plan uses Shift-to-Plan Year ECPs

Scenario B: This plan uses anniversary of employment date for all ECPs

• Taylor needs to work an additional 331.05 hours during the ECP (9/1/2023 – 8/31/2024) to become eligible on 9/1/2024.

Scenario C: This plan uses anniversary of employment date for all ECPs

• Sam is not an excluded class in the plan document, but is a “Union” employee, and the LTPT rules do not apply to employees covered by a collective bargaining agreement.

• Sam already met the age 21 requirement and will need to meet this plan’s service requirement of 12 months with 1,000 hours in the plan’s ECP to be eligible to participate in the plan.

Note: If you notice that a participant is showing 1,000 or more hours and is not excluded for another reason, contact your TPA to determine whether they should be eligible for the plan.

Key details to consider:

• If your plan is a MEP (Multiple Employer Plan) or PEP (Pooled Employer Plan), the date in the “Hire Date” column is the earliest hire date with any prior employer within the same MEP or PEP.
• If employees are excluded from deferring because they are part-time, seasonal or temporary employees, they must be permitted to defer if they 1) earn a Year of Service as defined by the plan (generally 1,000 hours or less in an ECP), or 2) satisfy the new LTPT eligibility rules.
• The “Plan YTD Hours” column includes hours reported for years the ECP is the plan year (e.g., for a plan with the plan year end of 12/31, the ECP is 1/1-12/31).
• The “Employment YTD Hours” column includes hours reported for years the ECP is calculated using the 12-consecutive-month period beginning with an employee’s hire date and each anniversary thereafter. For plans that use an ECP that shifts to plan year after the first anniversary, only the first employment year will be shown in “Employment YTD Hours” column.
• During your review of this report, note any participants who worked “three consecutive eligibility computation periods with 500 hours but less than 1,000 hours in each eligibility computation period,” that may become LTPT eligible in your plan on or after January 1, 2024. If you work with a Third-Party Administrator (TPA), contact your TPA if you have questions and to confirm if you have an LTPT-eligible employee.
• If your plan has an automatic enrollment provision, it is imperative that you provide the auto-enrollment notice to all employees eligible due to the LTPT rules at least 30 days in advance of their entry date, and auto-enroll them into the plan if they do not make an alternative election.