Long-Term Part-Time Workers: More Questions than Answers for Defined Contribution Plans?

NICOLAS DEGUINES, September 28, 2023

On December 29, 2022, the SECURE 2.0 Act of 2022 (“SECURE 2.0”) was signed into law. SECURE 2.0 builds upon the retirement improvements made by the Setting Every Community Up for Retirement Enhancement Act (“SECURE 1.0”).  One of SECURE 2.0’s main goals is to expand retirement coverage and increase retirement savings.

[Please see our article titled “SECURE 2.0 Provisions Impacting Employer-Sponsored Retirement Plans” for an overview of SECURE 2.0.]

Part-time workers are becoming increasingly prevalent in today’s job market and have, historically, faced challenges in accessing employer-sponsored retirement benefits comparable to those of their full-time counterparts. In 2019, Congress noticed that “[f]or long-term part-time workers who work for a number of years with the same employer but do not reach the 1,000 hours of service requirement to become eligible to participate in their employer’s qualified retirement plans (“LTPT employees”), present law can prevent, or limit, such employees’ ability to save for retirement in an employer-sponsored plan.” (See H.R. 1994 House Ways & Means Committee Report). To expand coverage to more employees, SECURE 1.0 added a new maximum service requirement for certain LTPT employees to be eligible to participate in their employer-sponsored 401(k) Plan. Specifically, employees who complete at least 500 hours of service in each of three consecutive 12-month periods must be eligible for a 401(k) Plan. SECURE 2.0 continues the trend that SECURE 1.0 started by accelerating the timeline for LTPT employees to gain access to employer-sponsored retirement plans. In doing so, SECURE 2.0 has placed a significant responsibility on plan sponsors, who must quickly identify which provisions apply to their retirement plans.

This article provides an overview of the LTPT rule and identifies outstanding questions that require additional guidance from the Department of Labor (DOL) and the Internal Revenue Service (IRS). 


Historically, under the Employee Retirement Income Security Act of 1974, as amended (ERISA), a retirement plan could not require an employee to attain an age greater than 21 to become a participant in the plan. (See Internal Revenue Code (IRC) §410(a)(1)(A)(i)/ERISA §202(a)(1)(A)(i)). Further, a plan could not require more than one year of service to become eligible for the plan unless it provides for immediate vesting, in which case it could require two years of service. (See IRC §410(a)(1)(A)(ii)/ERISA §202(a)(1)(A)(ii)).

To expand retirement plan coverage to more employees, Section 112 of SECURE 1.0 amended IRC §410(a) by adding a new maximum service requirement for certain LTPT employees, requiring that if employees complete 500 or more hours of service in each of three 12-month consecutive periods, they must be eligible to participate in the plan.

Section 125 of SECURE 2.0: LTPT 

SECURE 2.0 expands SECURE 1.0’s requirement even further by reducing, from three years to two, the maximum number of years an employer may require a part-time employee to work before they are eligible to contribute to a retirement plan. Pre-2021 service is also disregarded for purposes of vesting of employer contributions, just as such service is disregarded for eligibility purposes under SECURE 1.0. SECURE 2.0 also extends this LTPT coverage rule to ERISA-governed 403(b) plans. 

The effective date for this provision is for plan years beginning after December 31, 2024; however, the clarification that pre-2021 service may be disregarded for vesting purposes is effective for plan years beginning after December 31, 2020, because it is treated as part of SECURE 1.0.

Under SECURE 1.0, 401(k) plans could choose to implement hours-based participation exclusions until an employee worked at least 500 hours per year with the employer for at least three consecutive years and met the minimum age requirements of the plan by the end of the three-year consecutive period. This reduction from three to two years reflects Congress’s belief that SECURE 1.0 did not go far enough to enhance retirement security for LTPT workers. We note that tracking LTPT employees is challenging; therefore, some employers have amended their plans to provide immediate eligibility for their part-time employees. 

It should be noted that once an LTPT employee enters the plan, the employee continues to be eligible if his or her hours drop below 500 in future years. This issue is no different than the rules that apply under the 1-year of service requirement. If a participant is eligible to participate in the plan, they remain eligible (unless there is a break in service).

It also should be noted that these rules do not apply to eligibility for employer matching or non-elective contributions. Plan amendments will be necessary to reflect the new eligibility requirements.


  1. When is an employee eligible to enter a calendar year 401(k) plan if the employee has 500 hours in 2021, 500 in 2022, and 450 in 2023?

    Answer: The employee would enter the 401(k) plan on January 1, 2025. Under SECURE 1.0, this employee does not meet the 3-year rule as of the end of 2023; therefore, the employee is not eligible to participate as of January 1, 2024. Under SECURE 2.0, effective for plan years beginning on and after January 1, 2025, the 3-year rule is reduced to two years; therefore, this employee has satisfied the new rules for eligibility (based on performing at least 500 hours of service in 2021 and 2022), and will become eligible for participation as of January 1, 2025.

    Note: For 401(k) plans, service performed prior to 2021 is excluded. For 403(b) plans, service performed before 2023 is excluded. The LTPT rule under SECURE 1.0 does not apply to 403(b) plans. SECURE 2.0 extended the LTPT rule to 403(b) plans. Therefore, if the plan in the above example were a 403(b) Plan, the employee would not be eligible for the plan, as service performed under a 403(b) plan prior to 2023 is excluded for purposes of the LTPT rule.

  2. When is an employee eligible to enter a calendar year 401(k) plan if the employee performs 500 hours of service for the employer in 2022 and 2023, and 450 hours of service in 2024?

    Answer:  Under SECURE 2.0, the employee is eligible to enter the 401(k) plan on January 1, 2025, since the employee has performed at least 500 hours of service in two consecutive plan years as of the end of 2023. 

  3. When is an employee eligible to enter a calendar year 401(k) plan if the employee has 500 hours in 2023, 450 hours in 2023, and 500 hours in 2024?

Answer: The employee is not eligible for the 401(k) plan, because the employee has not performed at least 500 hours of service in two consecutive plan years.

New 401(k) Audit Rule for Form 5500

A primary concern many plan sponsors had with SECURE 2.0’s new LTPT rule was that it would force many small businesses to become “large plans” (a plan with 100 or more participants as of the beginning of the plan year), thus requiring them to file an audit report with their Form 5500, a significant additional cost that could be a deterrent to offering an employer-sponsored plan.

However, on February 23, 2023, the DOL announced significant changes in the methodology for counting employees for determining the audit requirement. This change allows plans to count fewer participants when determining the need for an audit. Under the current method, 401(k) plans count all eligible participants, regardless of whether they have an account balance. Effective for plan years beginning on or after January 1, 2023, plans must take into account only participants with an account balance. This means that if an LTPT employee elects not to make salary deferrals, they can be excluded for purposes of determining whether the plan is a “large plan” and, therefore, is subject to the audit requirement.

The “80–120 Participant Rule” remains, which allows plans with between 80 and 120 participants at the beginning of the plan year to file the Form 5500 in the same category (“large plan” or “small plan”) as the prior year filing. The rule allows plans with fewer than 121 participants to be considered a small plan for the year if they were considered a small plan for the prior year.

A Number of Questions Remain

Plan sponsors continue to wait for guidance from the IRS and DOL to clarify certain aspects of the new LTPT rules. The following are the common questions we have encountered in our practice:

  1. How will vesting for an employer contribution work if a LTPT employee who is a participant in the plan becomes eligible to receive the match under a regular plan provision? This issue was identified in connection with SECURE 1.0.  We are still waiting for relevant IRS guidance. 
  2. If a plan excludes certain categories of employees, are the excluded employees nonetheless eligible to participate in the plan if they satisfy the LTPT rules? This issue was identified in connection with SECURE 1.0.  We are still waiting for relevant IRS guidance. 
  3. How do the LTPT provisions impact the universal availability requirement that applies to 403(b) plans? Again, we are awaiting guidance from the IRS on this issue. The LTPT provisions do not replace the existing universal availability rules (and therefore apply in conjunction with those rules). This issue could impact plans using the universal availability exclusion for employees who normally work less than 20 hours per week.


While we await additional guidance from the IRS and DOL on the new LTPT rules, it is important to keep in mind that SECURE 1.0’s three-year rule applies to plan years beginning in 2024, while SECURE 2.0’s two-year rule applies to plan years beginning in 2025. Therefore, plan sponsors should start the hours tracking process sooner rather than later to ensure accurate counts and timely employee access to plan participation.

We will continue to keep you advised on any guidance released by the IRS or the DOL. We are also available to consult with you on the application of any of SECURE 2.0’s provisions to your retirement plan programs and to advise you on any steps needed to properly implement the new law.