Long Term Part-Time Employees:
What to Know About New Eligibility Rules

You may have noticed a theme emerging in recent blog posts here at ERISA.com – SECURE 2.0 and its emphasis on improving employee retirement savings. In this installment, we will continue the theme by discussing Long Term Part-Time Employees (or LTPTs, as we’ll call them). LTPT employees are those who have worked at least 500 hours for the same employer in 2 consecutive years but do not meet other entry requirements for their retirement plan.

As we mentioned in our post about retirement plan tax credits, one of the best ways to improve retirement outcomes is to ensure access to workplace retirement plans. According to the Employee Benefit Research Institute’s (EBRI) 2024 Retirement Confidence Survey, 85% of workers with access to a retirement plan have saved for retirement, compared to only 20% of workers without access.

One group that faces challenges because of a lack of access is LTPT employees. Many retirement plans require employees to meet certain age and service length requirements before they can participate. These rules often prevent part-time employees from joining their employer’s plan, increasing their risk of falling behind in retirement savings.

This is the issue the “new” LTPT rules address. SECURE 1.0 introduced these rules in 2019, delaying application until 2024, and SECURE 2.0 later updated them for 2025. Under current rules, once an employee has worked 500 hours for their employer in 2 consecutive years, they must be eligible to participate in the employee deferral portion of their employer’s plan. This allows them to contribute part of their paycheck toward retirement through 401(k) or 403(b) deferrals.

What Plan Sponsors Need to Know

LTPT employees first became eligible for their company’s plans in 2024. To qualify in 2024, they had to work at least 3 consecutive years between 2021 and 2023, with at least 500 hours per year. In 2025, the requirement drops to 2 consecutive years. If you have employees who meet these criteria, they should have entered your plan in either 2024 or 2025.

How Does it Work?

From 2025 onward, LTPT employees are those with at least two consecutive years of employment with 500+ hours annually, and who would have qualified without added service stipulations. However, plans may still exclude employees based on classification—for example, a plan may exclude employees hired after a specific date. Employees in an excluded class do not qualify as LTPT and remain ineligible.

For all others, once they meet the 2-year requirement, they must enter the plan for salary deferral purposes only. If the plan offers a company match or profit-sharing contribution, these employees do not need to be included in those contributions. Most LTPT employees will enter the plan on the first day of the plan year.

Impact on Nondiscrimination Testing

A concern for plan sponsors is how adding LTPT employees may affect nondiscrimination testing. The good news here is that LTPT employees are excluded from certain requirements, including nondiscrimination testing. Regulations proposed by IRS confirm that these employees may be excluded from nondiscrimination testing for purposes of coverage, ADP/ACP testing, and benefits, rights, and features testing. They are also allowed to be excluded from safe harbor contributions without jeopardizing the plan’s safe harbor status, and additionally are not required to receive top-heavy minimum contributions if the plan is top-heavy.

Vesting Rules

The rules related to vesting are not as favorable as those for nondiscrimination testing. For vesting purposes, employers are required to credit LTPT employees with a year of vesting service for any year beginning after 2021 in which the employee works at least 500 hours. Additionally, if an employee later meets the plan’s “regular” age and service requirements and becomes eligible for employer contributions, they will continue to be credited with a year of vesting service for each year in which they work at least 500 hours. In contrast, those employees who were never LTPT and who initially entered the plan based on the regular entry requirements would still be required to work 1000 hours in a year to receive a year of vesting service (assuming the plan normally requires 1000 hours for this purpose). The rule is not only counterintuitive, but also requires employers to track additional information for LTPT employees on an ongoing basis.

Tracking Eligibility for LTPT Employees

One of the biggest administrative challenges for plan sponsors is tracking LTPT employee eligibility. Many payroll and HR systems were not designed to track cumulative hours over multiple years. Employers may need to adjust their record-keeping processes to ensure compliance. Using a third-party administrator (TPA) can help reduce this burden by ensuring correct monitoring and application of LTPT eligibility.

Plan Design Considerations

While the LTPT rules mandate salary deferral eligibility, plan sponsors have options for broader plan design. Some employers may choose to simplify administration by lowering their general plan eligibility threshold to 500 hours instead of tracking LTPT employees separately. Since every plan is unique, sponsors should evaluate their workforce and long-term retirement goals before making changes.

For Plan Sponsors: Steps to Ensure Compliance

• Review your internal controls to confirm LTPT tracking procedures are in place.
• Coordinate with your TPA and payroll provider to ensure eligibility is monitored.
• Evaluate whether plan design changes (such as adjusting service requirements) could simplify administration.
• Educate LTPT employees on their new eligibility to encourage participation.

Final Thoughts

With LTPT rules now fully in effect, plan sponsors must ensure compliance while considering how these changes affect plan administration. While these rules expand access to retirement savings, they also introduce new administrative tasks.

Navigating these changes can be complex, and that’s where we come in. If you have questions about how these rules impact your plan or your clients’ plans, our team is here to help. We can review your current situation, provide guidance on compliance, and offer recommendations tailored to your needs. Contact us today to ensure your retirement plan is structured for long-term success.

Justin Bonestroo, MSEA, EA, CPC, CPFA

Executive Vice President, Actuary