Understanding Long-Term Part-Time Employee Eligibility Under SECURE Act 2.0

The SECURE Act 2.0, short for Setting Every Community Up for Retirement Enhancement, is a continuation and expansion of the retirement efforts that began with the original SECURE Act of 2019. Passed into law in 2022, SECURE 2.0 is designed to broaden access to retirement savings, increase flexibility for plan participants, and simplify plan administration for sponsors.

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Key Highlights of SECURE Act 2.0

This legislation introduces a wide range of updates to existing retirement rules. Among the most notable:

• Automatic Enrollment: Employers sponsoring new 401(k) or 403(b) plans must automatically enroll eligible employees at a minimum contribution rate of 3%, unless the employee opts out
• RMD Age Increase: The Required Minimum Distribution age has been raised from 72 to 73, giving participants more time to grow their retirement savings
• Emergency Savings Options: Employers may offer an emergency savings account within a 401(k), allowing employees limited access to funds via loans or hardship withdrawals for emergency situations

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Long-Term Part-Time (LTPT) Employee Provisions

Under previous rules, employees could be excluded from participating in a retirement plan if they did not meet the threshold of 1,000 hours worked during a plan year – depending on the provisions of your plan document.

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SECURE Act of 2019

• The original SECURE Act, effective January 1, 2021, introduced the concept of Long-Term Part-Time employees
• It required plan sponsors to allow participation for part-time employees who worked at least 500 hours for 3 consecutive years

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SECURE Act 2.0 of 2022

• Effective January 1, 2023, it reduces the consecutive service requirement from 3 years to 2, while maintaining the 500-hour minimum
• This means that part-time employees who work at least 500 hours in each of the 2 consecutive years will become eligible to participate, given that the employees meet the minimum age and other eligibility requirements
• This legislation took into effect January 2023 so we will see LTPT employees begin to qualify for plan year 2025 if they meet the minimum hour requirement

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Anticipated Financial Impact on Plans

With the reduction in service requirements for Long-Term Part-Time employees, we should expect an increase in the number eligible employees for the given year. This will most likely have a linear increase in both administrative costs and contributions beginning 2025.

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What This Means for Plan Sponsors and Auditors

For plan administrators, this provision requires enhanced tracking and recordkeeping of part-time employee hours—specifically those who fall into the 500–1,000 hour range annually. Plan sponsors must ensure accurate eligibility monitoring to comply with inclusion rules starting in the 2025 plan year.

For auditors, this change will affect eligibility testing procedures and could result in additional documentation and testing around part-time employee tracking, inclusion, and entry timing. It also heightens the importance of strong internal controls related to payroll data and service tracking.

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