IRS Confirms Same Hours-Counting Rules Still Add Up for Long-Term, Part-Time Employees

By , , and on February 6, 2024

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.

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Sarah L. Engle
Sarah Engle focuses her practice on employee benefits matters. She counsels clients regarding a variety of issues, including the design, drafting and operation of tax-qualified pension and profit sharing plans, health and welfare arrangements, and deferred compensation plans. Sarah has experience advising clients on employee benefits design, implementation and transition matters arising in connection with corporate mergers and acquisitions. Read Sarah Engle's full bio.

Brian Tiemann
Brian J. Tiemann counsels public and private companies on a broad range of employee benefit matters, including matters related to pension plans, 401(k) plans and executive and incentive compensation. He advises plan fiduciaries with respect to their fiduciary duties, investment policies and alternative investments. He also advises multinational clients on global employee benefits matters, particularly with respect to global incentive compensation plans. Brian has extensive experience negotiating investment management agreements and service provider agreements. Read Brian Tiemann's full bio.

Haley Dow
Haley M. Dow focuses her practice on employee benefits and executive compensation matters. Read Haley M. Dow's full bio.

Scott Kenkel
Scott Kenkel focuses his practice on employee benefits and executive compensation matters. He has experience assisting clients with regulatory compliance matters related to tax-qualified retirement plans and executive compensation arrangements. He also regularly works with clients on benefits and compensation issues in connection with corporate transactions. Read Scott Kenkel's full bio.




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