Long-Awaited IRS Proposed Regulations for Long-Term Part-Time Employees

On November 24, 2023, the Internal Revenue Service (IRS) released proposed regulations concerning the long-term part-time (LTPT) employee rules beginning in the 2024 plan year. The LTPT employee rules were originally established under the SECURE Act of 2019 and then modified under the recent SECURE 2.0 Act of 2022. SECURE 2.0 made changes to shorten the initial LTPT eligibility requirements and expanded them to include 403(b) plans. The new guidelines help define LTPT employees and certain eligibility conditions.

Who qualifies as an LTPT?
An LTPT employee is eligible to participate in a qualified cash or deferred arrangement (CODA) if they complete the applicable number of consecutive 12-month periods in which they perform at least 500 hours of service and attained age 21 by the close of the last 12-month period. It’s important to note that all plan years that start before January 1, 2021 must be disregarded when determining who qualifies as a LTPT employee.


• Effective in 2024 – Long-term part-time employees who work 500 to 999 hours for three consecutive years must be allowed to make elective deferrals into a 401(k) plan.

• Effective in 2025 – The eligibility wait time for long-term part-time employees is shortened from three consecutive years to two years if the employee is at least 21 years of age (eligibility and vesting service prior to 2023 are excluded).

The first 12-month period must start on the employee’s anniversary year or date of hire. After the first year, employers can use a different computation period such as calendar year. It is important to be aware that switching the computation period to calendar year may result in a few months of overlap between that first and second year.

Crediting Hours of Services
The proposed regulation allows plan sponsors to count actual hours and use the equivalency method to determine who is an LTPT employee. The proposed regulations do not require a 401(k) plan to begin counting hours if this method hasn’t been used previously.

Plan Contributions
If an LTPT employee meets the eligibility requirements, then they must be allowed to participate in the plan through salary deferrals only. Employers are not required (with the exception of a SIMPLE 401(k) plan) to make matching or nonelective contributions on behalf of these employees, even if these contributions are made on behalf of other eligible employees.

All LTPT employees will be credited with one year of service for each year that an individual is credited with at least 500 hours during a 12-month vesting computation period. Additionally, if an LTPT employee is credited 1,000 hours of service during any plan year and becomes eligible for the plan under the regular eligibility rules, the employee must continue to earn years of vesting service under the 500-hour rule because of their previous status as an LTPT employee.

Nondiscrimination and Coverage Testing
The proposed regulation permits employers to exclude LTPT employees from the coverage and ADP/ACP, and 401(a)(4) nondiscrimination tests. Plan sponsors must make a formal election to exclude LTPT employees from testing. It is not possible to exclude some LTPT employees and not others.

Top Heavy Testing Requirements
LTPT employees must be included under Code Section 416(g) to determine whether a plan is top-heavy. However, LTPT employees may be excluded from the top-heavy vesting and benefit requirements. Again, the exclusion must apply to all LTPT employees in the same manner.

Next Steps
The IRS was very delinquent in providing guidance for the Secure Acts LTPT provision. Many employers and service providers had to make decisions on how to administer the LTPT provision well before the guidance was provided.

The IRS accepted public comments on the proposed regulations until January 26, 2024. A public hearing on this proposed regulation has been scheduled for March 15, 2024. They will then issue final regulations, but that will take some time. In the meantime, plan sponsors are allowed to rely on this proposed regulation before the final regulations are published.

Even though written plan amendments do not have to be made until the end of the 2026 plan year, plan sponsors are required to operate their plans in compliance with these LTPT employee requirements starting with the 2024 plan year. Section 403(b) plans must implement these provisions for plan years beginning in 2025.

Please contact your Client Service Manager with any questions regarding this long-term part-time employee provision.


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