IRS Issues Long-Awaited Long-Term Part-Time Employee Guidance
The IRS has released a proposed rule reflecting statutory changes made by the SECURE Act and SECURE 2.0 related to long-term, part-time employees. The SECURE Act of 2019 expanded coverage for 401(k) plans to allow those who had worked at least 500 hours in three consecutive years to participate under a plan’s salary deferral provision – with service required to be counted beginning with plan years on or after January 1, 2021. SECURE 2.0 shortened this wait to two years effective for 2025 and later plan years, and expanded applicability to ERISA-covered 403(b) plans allowing salary deferrals.
The proposal would amend Treasury Regulation 1.401(k)-5 to reflect rules for long-term, part-time employees under SECURE and SECURE 2.0. Under the proposal, the rule would be applicable for plan years that begin on or after January 1, 2024, and could be relied upon. The proposal includes
- A definition of long-term, part-time employee, including eligibility to participate and the effect of various service crediting rules
- Participation requirements including determination of 12-month periods and eligibility conditions not based on age and service
- Years of vesting service and treatment of former long-term, part-time employees
- Applicability of nonelective and matching contributions and coordination with employer elections
- Employer elections regarding nondiscrimination coverage and top-heavy rules
There will be a 60-day period for public comments upon publication in the Federal Register.