The Internal Revenue Service finally released regulations for 401(k) plans for long-term, part-time employees (LTPTE). The provision will go into effect starting January 1, 2024.

It provides guidance on LTPTE rules that were established with the SECURE Act in 2019 and SECURE 2.0.

Under the SECURE Act, 401(k) plans can no longer have service conditions that prevent employees from making salary deferrals if they’ve worked for an employer for at least 500 hours for three consecutive years. SECURE 2.0 further amended the rule that starting in 2025, it will apply to employees who have worked 500 hours for an employer for just two, not three, consecutive years.

The new guidelines seek to better define LTPTEs, and eligibility conditions under the SECURE Act. The new rules only apply to LTPTEs who are “solely” in the plan because of the rules. Employees who are immediately eligible for a plan, for example, are not considered LTPTEs. All LTPTEs earn vesting for 500 hours of service in a 12-month period, instead of 1,000 hours, and that applies to all current and future employer contributions. Additionally, that more rapid rate of vesting will essentially apply forever, even if the LTPTE eventually earns 1,000 hours of service. Plans will still be able to apply job class exclusions to LTPTEs as long as they don’t impose an impermissible age or service requirement. Under the new rules, the 12-month period for LTPTE service begins on the hire date but can later shift to the plan year.