Reminder: Long-Term, Part-Time Employee Rules Effective January 1, 2024

As part of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), part-time employees who worked at least 500 hours each year in 2021, 2022, and 2023 qualify as Long-Term, Part-Time (LTPT) employees. LTPT employees were eligible to make elective deferrals on January 1, 2024.

What happens if you missed enrolling one of these employees?

  • Mistakes happen. When it comes to a missed deferral opportunity, the key is to correct the failure as soon as possible. This may include withholding the proper deferrals going forward, making an employer contribution to the plan, and providing the participant with a written notice regarding the failure. If you feel as though you missed offering an employee the opportunity to defer, please contact us immediately to remedy the situation rather than waiting until the end of the plan year.

What effect does this rule have on Solo 401(k) (One-Participant) Plans?

  • If a plan covers a business owner (or owner and spouse) but employees have not met plan eligibility requirements in the past, the new Long-Term, Part-Time (LTPT) rules will have an impact. As the company owner is no longer the only participant, the plan will now be subject to ERISA.
  • The ability for the employee to defer will not necessarily impact your employer contribution and testing, but it will have an impact on the plan’s filing status. This means that filing a Form 5500 or 5500-SF will be necessary, rather than filing a Form 5500-EZ. These forms require additional information to be reported, and are publicly available after filing, whereas Form 5500-EZ is not made public.
  • The plan will also need to be covered by a fidelity bond to protect the assets, even if part-time employees make no deferrals.

Keep the new LTPT rule in mind when hiring employees—even if not full-time—as they may have an unexpected impact on your plan. Continue to evaluate the status of your part-time employees as well so that you can be prepared for their eligibility for the plan.

This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.