Tag Archives: eligability

Things I Worry About (5): Long-Term, Part-Time Employees (1)


401(k), 403(b), plan sponsors, SECURE Act
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Key Takeaways

  • SECURE Act 1.0 required that long-term, part-time (LTPT) employees be allowed to defer into 401(k) plans beginning January 1, 2024 for calendar year plans. However, plan sponsors are not required to contribute for them.
  • LTPT employees for SECURE 1.0 are those who have worked at least 500 hours a year for three consecutive years, but didn’t satisfy a plan’s regular eligibility provisions.
  • SECURE Act 2.0 reduced the three-year requirement to two years and extended the requirement to private sector 403(b) plans. The 2.0 change applies in January 2025 for calendar year plans. As a result, if the new two-year requirement is satisfied, those LTPT employees must be allowed to defer into the plans for the first payroll in January 2025.
  • My concern is that plan sponsors—and particularly small plan sponsors (e.g., private schools with 403(b) plans)—may inadvertently fail to satisfy these qualification rules and put their plans in jeopardy.

The SECURE Act (“SECURE 1.0”) included a provision that required sponsors of 401(k) plans to include their long-term, part-time, or LTPT, employees in their plans for purposes of deferring part of their compensation into the plan. Plan sponsors are not required to contribute for those LTPT participants (e.g., matching contributions) even if they do for “regular” participating employees,  but they may.

For purposes of SECURE 1.0, a part-time, or PT, employee is an employee who works at least 500 hours a year, but not enough to satisfy the plan’s regular eligibility provisions. A long-term employee is a PT employee who satisfies the requirement for three consecutive years. The first contingent of qualifying LTPT employees must have been allowed to defer in January of 2024. (For purposes of this article, I’m assuming that plans are on a calendar year.)

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The New Fiduciary Rule (18): Requirement to File Form 5330 and Pay Excise Taxes


2020-02, 84-24, fiduciary, prohibited transaction
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The U.S. Department of Labor has released its package of proposed changes to the regulation defining fiduciary advice and to the exemptions for conflicts and compensation for investment recommendations to retirement plans, participants (including rollovers), and IRAs (including transfers).

Key Takeaways

  • The DOL’s proposed fiduciary regulation defines fiduciary recommendations to include, among other things, one-time advice where specified conditions are satisfied.
  • That expansive definition will cause many more advisors and insurance agents to be fiduciaries for their recommendations and, where the recommendations result in additional compensation for them or their firms, the implementation of the recommendations will result in prohibited transactions. That would be the case where, for example, a rollover recommendation results in fees or commissions from the rollover IRA.
  • Where a prohibited transaction occurs, the protection of an exemption (PTE) will be needed, e.g., PTEs 84-24 or 2020-02.
  • The proposed amendments those PTEs include a requirement that, if a failure to satisfy the conditions of the exemptions is found in the annual review of covered transactions, the failure must be corrected and reported to the DOL and, if those steps are not timely taken, a Form 5330 must be filed with the IRS and excise taxes on prohibited transactions must be paid.

When a person makes a “covered” recommendation to a “retirement investor” and the recommendation, when implemented, results in the person (or his or her firm) receiving additional compensation, a prohibited transaction (under the Code and ERISA) will occur.

A “covered” recommendation is one in which the person is a fiduciary (as defined in the proposed fiduciary recommendation) and which falls into one of the three defined categories. Those categories include, for example, recommendations about investing in securities or annuities, rollovers, IRA transfers, withdrawals from retirement accounts, and investment strategies, policies and allocations.

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