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LTPTE Changes

What Is Changing?

401(k) plans no longer can have a service condition that prevents an employee from making 401(k) salary deferrals if they have worked for your company at least 500 hours for 3 consecutive years.

  • Example: Your 401(k) plan requires employees to complete a year of service (1,000 hours) before they are eligible to participate. You hired a part-time employee on 1/1/2021 who works 700 hours per year. Assuming this employee meets all other eligibility conditions, he or she will be eligible to make 401(k) deferrals beginning on 1/1/2024 (assuming your plan is using a calendar year plan year).

Beginning in 2025, this requirement changes to cover employees who have worked for your company at least 500 hours for 2 (instead of 3) consecutive years.

Employees who do not meet the normal 1,000-hour year of service requirement but do meet this new minimum service requirement are called “long-term part-time employees” or LTPTEs.

Any non-service conditions, such as excluding hourly employees, salaried employees, interns, or highly compensated employees, are still permitted as long as it is not a “disguised service condition”. Exclusions of “part-time employees” and “seasonal employees” generally are considered to be service conditions, and therefore are subject to the new rules.

What Are Your Options?

You generally have two options, each with pros and cons outlined below:

  1. Keep the plan’s existing service condition except that anyone who meets the LTPTE definition is allowed to make 401(k) salary deferrals to the plan.


  • Limits the number of part-time workers eligible for the plan, which reduces administration costs and small account balances.
  • Ensures nondiscrimination testing and top-heavy minimum contributions are not impacted.


  • Must track hours and ensure LTPT employees are identified and offered enrollment timely. Due to complexity, errors are more likely to occur, requiring corrections and increasing costs.
  • LTPTEs must earn vesting service for each year they work at least 500 hours. If your plan has a vesting schedule, these employees will vest in any company contributions much more rapidly than other participants unless you accelerate vesting for the full-time participants.
  1. Modify the plan’s existing service condition to ensure all employees are able to make 401(k) salary deferrals before they meet the LTPTE definition.


  • Simplifies administration by permitting a single eligibility criterion (or easier to administer criteria), which may avoid errors in the future.
  • Complex eligibility and accelerated vesting rules applicable to LTPTEs will not apply to the plan; participants will be treated uniformly for plan purposes.


  • May impact nondiscrimination testing, particularly if the plan is not a safe harbor plan. If the plan is safe harbor, this may increase required company contributions.
  • May increase number of accounts, which may increase audit/administration costs.

For more information about LTPTE, please contact your trusted TBC Advisor.