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LTPT rules under Secure 2.0


BG5150

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In Secure 2.0 there is a section on LTPT that references 2 years of 500 hour of serivce and it is set to take effect in 2025.

Does that override the current rules?  Or do we use 3 years of 500 hours UNTIL 2025 then scale back to 2 years?

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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My best understanding at this point is that employees who worked 500 hours for 3 consecutive years from 2021 through 2023 will enter plans on 1/1/2024. Then, employees who work 500 hours for 2 consecutive years 2023-2024 will enter plans 1/1/2025, and any two consecutive years after that will enter the plan the following year.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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Aaargh! And here I was hoping we didn't have to worry about LTPT until 2025.

And FWIW, I just had your interpretations confirmed by a "big name" in this business. I hadn't read the actual Section until you brought it up, and sadly, I had to agree. I liked the summary I had read earlier, (which just pushed it off until 2025), a whole lot better... 

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  • 3 weeks later...

Re-upping this. In ASPPA webcast yesterday, the presenters had a discussion after the slide on this subject was shown. What I understood (or misunderstood) them to say was that pre-2023 eligibility service was not ignored for 401(k) - only for 403(b), so that for 401(k) purposes, someone who had 500 hours in, say, 2022 and 2023, but not in 2024, would enter on 1/1/2025. Did anyone else watch this, and if so, did you hear the same thing?

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3 hours ago, Belgarath said:

Re-upping this. In ASPPA webcast yesterday, the presenters had a discussion after the slide on this subject was shown. What I understood (or misunderstood) them to say was that pre-2023 eligibility service was not ignored for 401(k) - only for 403(b), so that for 401(k) purposes, someone who had 500 hours in, say, 2022 and 2023, but not in 2024, would enter on 1/1/2025. Did anyone else watch this, and if so, did you hear the same thing?

I got the same thing. I appreciated Bob giving that example.

William C. Presson, ERPA, QPA, QKA
bill.presson@gmail.com
C 205.994.4070

 

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Yeah, me too. I missed this little detail entirely. So Gilmore - looks like you had it right! I did send this question to ERISApedia for their Q&A session (late February) just to see if they concur.

On 1/6/2023 at 7:48 PM, Gilmore said:

I'm assuming this also means that an ee with 500 hours in 2021 and 2022, but not 2023 or 2024 would be eligible as a LTPT on 1/1/2025?

 

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Nice.  Funny, I was just rereading that section to update my chart and made a note that it did seem that the pre-2023 service would count in a 401(k).  Appreciate the update and also sending the question for the upcoming ERISApedia session.  I've signed up for that one as well.  Thanks very much.

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2 hours ago, Gilmore said:

I wouldn't be too hard on yourself.  I just read the ASPPA update that a technical error has now eliminated all catchups effective for January 2024.

David Levine from Groom said about an hour ago on a PSCA committee call that he thinks there is an argument that this isn't the case (albeit a little convoluted in his approach) involving language that does exist with respect to catch-ups that "notwithstanding any other section" - and then goes on to "authorize" catch-ups.  I believe he is interpreting the "notwithstandy any other section" to also mean "notwithstanding the lack of any other section."  He didn't provide the particulars - but be on the lookout ....

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When we speak about this new rule, is it just for service credit? How are entry dates handled? For example, if someone worked 500 hours in 2022, 2023 and 2024 do they become eligible to start contributing:

A) The day they complete 500 hours in 2024?

B) The next Plan entry date in 2024 after completing 500 hours?

C) 1/1/2025 - The first day of the next Plan Year after 3 consecutive years working 500+ hours?

Thanks.

ERPA, QPA, QKA

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It's not entirely clear yet - hopefully the IRS will give us some guidance on these questions this year.

If I had to interpret the law as written, I would probably say that the normal entry conditions apply; an LTPT has to enter the plan by the earlier of the first day of the next plan year, or the date six months after the date they complete their three (soon to be two) consecutive periods of 500 hours of service.

Moreover, it seems that the normal rules for counting periods of eligibility service would apply too, so if you had an employee hired 12/1/2023 who worked 500 hours in their first eligibility computation period of 12/1/2023-11/30/2024, their second eligibility computation period would be 1/1/2024-12/31/2024 (unless the plan stays on anniversary years) and if they worked 500 hours during that period, they would enter the plan on 1/1/2025.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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In your first example, you could have someone eligible on7/1/23 (if they worked more than 500 hours in 2021, 2022, and 2023). But everything else we read seems to indicate that we don't really need to worry about this until 1/1/24. Just add to the confusion.

And then, of course, what if a Plan has quarterly, monthly, or even immediate entry dates?

ERPA, QPA, QKA

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2 hours ago, Gadgetfreak said:

In your first example, you could have someone eligible on7/1/23 (if they worked more than 500 hours in 2021, 2022, and 2023). But everything else we read seems to indicate that we don't really need to worry about this until 1/1/24. Just add to the confusion.

The LTPT rules added by SECURE 1.0 said that you do not need to take into account periods of service before 1/1/2021. So maybe I am missing something but I don't see how you are going to get 3 consecutive 12-month periods beginning on or after 1/1/2021 and ending before 7/1/2023. I agree that 1/1/2024 is the earliest any LTPT  employee needs to become eligible.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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Ah. I forgot about the 12-month period. I was just thinking 500 hours in a calendar year. OK. I agree 1/1/24 is the earliest, which will bring in anyone who worked 500 hours in 2021, 2022 and 2023. But, without guidance on entry dates, future eligibility after 1/1/24 is going to be a nightmare. What is someone worked 500 hours spanning two calendar years, etc?

ERPA, QPA, QKA

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