Long-Term Part-Time Employees- A New Rule Affecting All 401(k) Plans Jan 13

Before 1/1/2021, a 401(k) plan could not require employees to complete a period of service that extended beyond the later of the attainment of age 21 or the completion of a 12-month period during which the employee has completed at least 1,000 hours.

Beginning 1/1/2021, a 401(k) plan may not require employees to complete a period of service that extends beyond the close of the earlier of:

• later of the attainment of age 21 or the completion of a 12-month period during which the employee has completed at least 1,000 hours of service; or
• the first period three consecutive 12-month periods during each of which they worked 500 hours.

In plain English this means that if you have permanent part-time employees working more than 500 hours but less than 1000 hours you must start keeping track of their hours in 2021 for eligibility purposes.  And if they earn 500 or more hours in 2021, 2022 and 2023, they will be eligible for your 401(k) plan in 2024.

For vesting purposes all years of service count.  A year of service for vesting for these long-term part-time employees is 500 hours of service.
Frequently asked questions:

• Can LTPT* employees be allowed to participate before 2024?  Yes!
• Once the LTPT employees are eligible for the Plan, must they receive employer and matching contributions?  No!  They must be able to make salary deferrals.

*LTPT= Long-Term Part-Time Employees

If you have any questions please let us know!