IRS Reminds Plan Sponsor About Long-Term Part-Time Employees in 401(k) Plans

January 30, 2024

The SECURE Act made changes to when an employee is eligible to make deferrals to a 401(k) plan. A 401(k) plan generally cannot, as a condition of making deferrals to the 401(k) plan, require an employee to complete a period of service that is longer than:Employees who have not completed a year of service but have three consecutive 12-month periods with at least 500 hours of service in each period are commonly called “long-term part-time employees.” The 3-consecutive year condition is reduced to 2-consecutive years beginning in 2025.

This new requirement generally applies to all 401(k) plans and all employees, other than certain employees covered by a collective bargaining agreement. For a 401(k) plan that uses the calendar year as its plan year, this change could require enrollment of long-term part-time employees as of January 1, 2024.

Action items: Avoid long-term part-time errors

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