LTPT??? What does that mean and why is it something we now need to worry about in our retirement plan?? First of all, it means Long Term Part Time employees. The worry and the reason for the addition is that there may be employees that have worked for an employer as a part time employee for many years and never met eligibility requirements to join the plan. Have those employees been negatively impacted since they were unable to save in the plan? And now they have no retirement savings (unless they saved for themselves in an IRA)?
After 12/31/2024, employees with two consecutive years of at least 500 hours of work must be eligible for the plan. The original Secure Act in 2019, was for three consecutive years of service starting January 1, 2021. So Secure 2.0 shortened the time from 3 years to 2 years.
So how does this ultimately affect plan sponsors? They now must allow those employees to make deferral contributions into their retirement plan, but they do not need to provide employer contributions to that group of employees. They can still require that group of employees to meet a 1,000 hour requirement to be eligible for those contributions.
The other thing for plan sponsors is that including these employees in the plan will not negatively impact the compliance testing for the plan as that group can be “tested separately” so that it does not adversely affect the results of that testing…although it does add an additional “complication” to the testing that the TPA now has to deal with.
One thing that a plan sponsor should look at (and talk to their retirement plan professional about) is if they “exclude” a group of employees from the plan that may fall into the LTPT bucket, as it is unclear as to how those exclusions who might fall into this group may affect some of the coverage requirements in the plan.
We definitely need to talk with our plan sponsors about this new rule to make sure they are tracking hours and providing us the correct information relating to this change…and to make sure they are aware of what may change for them if they employee these types of employees.
