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.

General FAQs

How did the SECURE Act change the eligibility requirements for salary deferral?

The SECURE Act added a new maximum service requirement that applies in addition to the currently applicable Year of Service rule. Because of the new rule, there are three ways an employee can become eligible to defer to the plan:

• The employee satisfies the plan’s standard eligibility requirements (e.g., 6 months of service).
• The employee earns a Year of Service (e.g., they work 1,000 hours in an ECP).
• The employee works three (3) consecutive ECPs, with at least 500 hours (but less than 1,000 hours) in each ECP.

The last option is the rule added by the SECURE Act. Employees who become eligible solely because of this rule are called “Long-Term Part-Time Employees” or “LTPT Employees.”

Note: If your plan’s standard eligibility requirement is a Year of Service for all employees, there are only two ways a participant will become eligible – after they meet the Year of Service or the LTPT eligibility rules, whichever comes first.

When is the change effective?

1/1/2024 is the first date an LTPT Employee could be eligible to defer for a calendar year plan. This is because the SECURE Act provided that only ECPs that began on or after 1/1/2021 are counted to determine if an employee is an LTPT Employee.

What is an eligibility computation period (ECP)?

An ECP is the 12-consecutive months that a plan uses to measure years of service. The first ECP always begins on the employee’s hire date and ends the day before their 1-year anniversary. Subsequent periods will either switch to plan years or continue to be based on the anniversary of the employee’s date of hire. 

I heard more changes are coming to the LTPT eligibility rules due to the SECURE 2.0 Act of 2022. Is that true?

Yes. The SECURE 2.0 Act modified the LTPT eligibility rules effective for plan years beginning on or after 1/1/2025. Our focus right now is on the original SECURE Act rules, but we are preparing for these future changes and will provide you with updated information as we approach that effective date. The two key changes are:

• For plan years beginning after December 31, 2024, the 3-consecutive ECP year requirement is reduced to 2- consecutive years.
• The rules are expanded to cover 403(b) plans that are subject to ERISA (only counting ECPs beginning on or after 1/1/2023). This will impact ERISA-covered 403(b) plans that exclude employees who normally work less than 20 hours per week.

Operational FAQs

Does the plan’s normal age requirement apply?

Yes, an employee must still meet the age requirement in the plan document before they can defer.

Do the new rules apply if my plan excludes part-time, temporary, or seasonal workers?

Yes. They will enter the plan the earlier of 1) completion of a Year of Service (e.g., 1,000 hours in an ECP), or they work three consecutive ECPs, with at least 500 hours in each ECP.

Do these rules apply if my plan has immediate eligibility for 401(k) deferrals?

No, if all your employees are immediately eligible. But if your plan applies a Year of Service requirement to some

Are any employees excluded from the LTPT eligibility rules?

Yes, Union Employees, Non-resident aliens with no U.S. source income, and employees who are excluded under the terms of the plan because of a classification other than part time, seasonal, or temporary employees, are not subject to the LTPT eligibility rules.

If my plan has automatic enrollment and/or escalation, will it apply to the LTPT employees?

Yes. Plans with the automatic enrollment and automatic escalation provisions will follow the same rules they do for non- LTPT employees. This means that employees who meet the LTPT eligibility requirements must be automatically enrolled on their plan entry date if they have not made a different election.

Are LTPT Employees eligible for employer contributions?

No, LTPT Employees are only eligible to make elective deferral contributions. They will not be eligible for employer match or nonelective contributions, including any Safe Harbor contributions. LTPT Employees must meet the plan’s standard eligibility requirements or the Year of Service requirement to be eligible for employer contributions.

Do I need to give LTPT Employees any notices or disclosures on or before their entry date?

Yes. Just like your employees who become eligible due to your plan’s standard eligibility rules or the Year of Service rule, LTPT employees need to receive certain notices and disclosures on or before their plan entry date including:

• Summary plan description
• Participant Fee Disclosure Notice
• QDIA Notice (if applicable)
• Automatic enrollment notice (if applicable)
• Combined automatic enrollment /safe harbor notice (if applicable)

If your plan is a 401(k) safe harbor plan, but does not include an automatic enrollment provision, LTPT Employees do not need to receive the safe harbor notice..

If an LTPT Employee’s hours drop below 500 hours in an ECP, do they continue to be eligible to defer?

Yes. They are still considered a participant in the plan and can continue to defer.

Do LTPT Employees accrue vesting years of service?

Yes. The SECURE Act requires LTPT employees to be credited with a vesting year of service for any vesting computational period in which they work at least 500 hours (versus the normal 1,000 hours). Only vesting computational periods beginning on or after 1/1/2021 are considered. Also, if an employee who became eligible under the LTPT rules later meets the plan’s standard eligibility requirements or the Year of Service rule, they will continue to earn a vesting year of service for each period they work at least 500 hours.

How will LTPT Employees impact annual testing?

Employees who are eligible to participate solely because of the LTPT rules can be excluded from coverage testing, nondiscrimination testing and top-heavy requirements. As always, Cuna Mutual Group will take all testing rules into account to determine what is most advantageous for your plan. We will provide more information when it is time to complete the 2024 plan year tests.

What happens if we fail to offer the plan to an LTPT employee when they become eligible?

If you fail to offer an LTPT Employee the opportunity to defer on their entry date, the plan will have an operational failure that will need to be corrected under EPCRS. Depending on how long they were kept out of the plan after their entry date, this may mean you owe the LTPT employee a “missed opportunity QNEC (Qualified Nonelective Contribution).”

These LTPT rules are complex. What options do I have to lessen the administrative burden?

One way to lessen the burden is to have a less restrictive standard eligibility requirement. For example, you could amend the plan to allow employees, including your part-time, seasonal, or temporary employees, to join the plan on their date of hire or after a brief period (e.g., 3 months). Please contact your consultant to discuss this and other plan design options.

Can you provide more details on how ECPs work?

Of course. Remember, an employee’s first eligibility computation period is always the 12-month period that begins on their date of hire and ends on the day prior to their first employment anniversary. There are two options for counting subsequent ECPs, which is based on your plan document:

Example 1: The employer sponsors a 401(k) plan with a calendar year plan year end, a one-year/1,000-hour service requirement, quarterly entry dates, and shift to plan year ECP.

Tina is hired 8/1/2020 and works the following time periods.

• Tina will enter the plan and be eligible to defer effective 1/1/2024.
• Tina’s first ECP that commenced prior to the 2021 plan year is excluded.
• Note how the ECP shifts to plan year in 2021.

Example 2 same as example one, except Tina’s hire date is 8/1/2021.

• Tina can enter the plan and make 401(k) Salary Deferrals effective 1/1/2024.
• Tina’s first year began in 2021, the ECP shifts to plan year in 2022, completed the LTPT three-year rule by the end of the 2023 ECP.

Example 3: The employer sponsors a 401(k) plan with a calendar year plan year end, a one-year/1,000-hour service requirement, quarterly entry dates, and employment year calculation ECP.

Paul is hired 8/1/2020 and works the following time periods:

• Paul can enter the plan and make 401(k) Salary Deferrals effective 10/1/2024.
• Paul’s first year that commenced prior to the 2021 plan year is excluded.