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SECURE Act’s LTPT Provision: A Refresher

Practice Management

On Jan. 1, 2021, Section 112 of the Setting Every Community up for Retirement Enhancement (SECURE) Act became effective. That spelled big change for certain long-term, part-time (LTPT) employees, since that section of the SECURE Act requires that they be given the opportunity to make salary deferrals to a 401(k) plan.

In “Participation of Long-Term, Part-Time Employees in 401(k) Plans,” a recent entry in Kilpatrick Townsend’s blog, R. Sterling Perkinson, Partner, and Carlisle Toppin, Associate, note that “the clock started” on Jan. 1 for tracking hours in order to determine the eligibility of LTPT employees in a 401(k), and suggest that employers that exclude part-timers from their 401(k) plan should make sure they are in compliance. 

What the Rules Are

Perkinson and Toppin write that under Section 112 of the SECURE Act, the rules regarding LTPT employees are as follows.

Enrollment. An LTPT employee who meets the statutory age and service requirement must become a participant no later than the earlier of (1) the first day of the plan year after meeting those requirements or (2) six months after the date the employee satisfies them.

Hours of Service. The SECURE Act modifies the minimum age and service conditions ERISA sets to mandate that part-time employees with at least 500 hours of service in each of three consecutive 12-month periods have the opportunity to enroll in a 401(k) plan and make salary deferrals.

Eligibility to Participate. Effective for plan years beginning on or after Jan. 1, 2021, LTPT employees with at least 500 hours of service in three consecutive 12-month periods must be given the opportunity to participate in employee deferrals for a 401(k) plan. They add that part-time employees may become eligible to defer under a 401(k) plan as an LTPT employee after logging at least 500 hours of service in each of 2021, 2022 and 2023.

Nondiscrimination Testing. Employers may exclude LTPT employees from nondiscrimination testing. However, if an LTPT employee satisfies the general minimum age and service requirements by completing at least 1,000 hours of service, he or she must be included in the nondiscrimination testing. 

Employer Contributions and Profit-Sharing. LTPT employees may be excluded from employer matching and profit sharing contributions, as well as safe harbor profit sharing or nonelective contributions under a safe harbor 401(k) plan. However, if an LTPT employee satisfies the general minimum age and service requirements by completing at least 1,000 hours of service, he or she becomes eligible to participate in employer contributions. 

Vesting. If an employer voluntarily chooses to provide LTPT employees with employer matching or profit-sharing contributions that are subject to a vesting schedule, then years of service for vesting purposes must include each 12-month period during which the employee has 500 hours of service or more. This rule, Perkinson and Toppin say, generally requires crediting of vesting service for all years in which the employee had 500 hours of service or more, including 12-month periods before Jan. 1, 2021. 

Who the Rules Do Not Apply to. The new rules do not apply to employees covered by collective bargaining agreements if their retirement benefits were the subject of good faith bargaining. They also do not apply to employees who are not 21 years old by the end of the three consecutive 12-month periods.

Still Time… for Now

Perkinson and Toppin note that there is still some time to come into compliance with Section 112 of the SECURE Act. In general, they observe, employers must amend their plans under Section 112 by the last day of the plan year that begins on or after Jan. 1, 2022—by Dec. 31, 2022 for calendar-year plans. They note that there may be later deadlines for certain collectively bargained plans and governmental plans.