Following the SECURE Act and the SECURE 2.0 Act, employers must now offer employees who work at least 500 hours within three (reduced to two beginning January 1, 2025) consecutive 12-month periods an opportunity to make elective deferrals to their 401(k) plans and, beginning in 2025, their 403(b) plans. This new long-term, part-time employee rule modifies rules that previously allowed employers to exclude employees from plan participation until the employees completed 1,000 hours of service in a single 12-month measurement period.
In doing so, the new rule has generated questions about whether all employers will now be required to track the actual hours all employees work to ensure compliance with this rule. The recently proposed regulations released by the Internal Revenue Service (IRS) confirm, in what should be a relief to many employers, that the answer is no. Employers do not need to change how they count periods of service toward plan eligibility. However, employers should revisit how such service is currently counted under their plans and consider the impact that may have on if and how the long-term, part-time employee rules apply.