Definition of “Long-Term Part-Time Employee” is Important

The SECURE and SECURE 2.0 Acts mandated that employers who have 401(k) or 403(b) plans provide long-term, part-time employees with the opportunity to make elective deferrals to those plans. The definition of “long-term, part-time” was not clearly laid-out in the acts, however. Now the IRS has proposed new regulations to answer that question. According to the National Law Review:

…an employee will be a long-term, part-time employee only if the employee becomes eligible to make elective deferrals under a plan solely as a result of completing at least 500 hours of service in three consecutive years (reduced to two years in 2025) and reaching age 21 by the end of that period. Put another way, an employee who might otherwise qualify as a long-term, part-time employee by meeting the minimum service requirements will not be considered one if the employee enters the plan after first satisfying other minimum eligibility criteria.

That last distinction is made because there are special vesting and other provisions that apply only to employees who meet those specific criteria.