On October 3, the Internal Revenue Service (IRS) and Treasury issued new guidance, Notice 2024-73, on coverage requirements for long-term part-time employees (LTPTE), beginning in 2025. SECURE 2.0, enacted late in 2022, includes a provision requiring employer-sponsored retirement plans to allow long-term (those with service of two years or more) part-time (those who work at least 500 hours/year) to participate in the employer-sponsored retirement savings plan.
Notice 2024-73 applies to 403(b) plans—a proposed LTPTE rule applicable to 401(k) plans was issued last year on November 27, 2023. IRS said that both the 401(k) and the 403(b) rules will apply “no earlier than to plan years beginning on or after January 2, 2026.” Between now and the regulations’ ultimate effective date, plan sponsors will have to enroll their LTPTEs but can use “a reasonable interpretation of the statute until the IRS’s rules are finalized.”
Generally, Notice 2024-73 discusses coverage requirements for LTPTEs as compared to part-time employees who do not meet the LTPTE statutory definition. The Notice says, “A 403(b) plan that is subject to ERISA may continue to retain a part-time employee exclusion for part-time employees who do not qualify as ERISA LTPT employees,” the IRS wrote. “Excluding part-time employees who do not qualify as ERISA LTPT employees will not cause the plan to violate the Section 403(b) consistency requirement under § 1.403(b)-5(b)(4)(i), which prevents a plan from selectively applying the part-time employee exclusion to some, but not all, part-time employees.
“Because the eligibility rules for ERISA LTPT employees under Section 202(c) of ERISA are new statutory requirements,” the Notice added, “plans would not be selectively applying the part-time employee exclusion by continuing to exclude from making elective deferrals part-time employees who do not qualify as ERISA LTPT employees.”
Prospects: Long-term part-time employees are the focus of considerable interest and concern among ERISA and retirement savings tax lawmakers. Expect regulations that maximize coverage for LTPTEs, and possibly a legislative proposal to include even more workers in the definition of long-term part-time employees.
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.