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"20 hour exclusion" rule and SECURE 2.0 LTPT rule

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I assume the LTPT rules will override the 20 hour exclusion (for deferrals), thereby making the 20 hour provision even more difficult to administer than it already is? (As an editorial comment, I despise the 20 hour rule anyway, but that's a separate issue.)

Anyone have any particular observations on this issue?

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For an ERISA-governed plan, there are complexities about how ERISA § 202(c)(1)(B)’s provision for long-term employees interacts with Internal Revenue Code of 1986 § 403(b)(12)(A)’s nondiscrimination conditions as they apply regarding employees “who normally work less than 20 hours per week.”

Under new Internal Revenue Code of 1986 § 403(b)(12)(D), a plan need not allocate a nonelective or matching contribution to an employee eligible for § 403(b) elective deferrals “solely by reason of” ERISA § 202(c)(1)(B).

If a plan provides contributions beyond elective-deferral contributions, the employer may elect not to count the ERISA § 202(c)(1)(B) long-term part-time employees in coverage and nondiscrimination measures, but counts the employees “who normally work [at least] 20 hours per week.”


With no advice (not that anything I put on BenefitsLink is advice), that’s my first (and cold) read. Do BenefitsLink mavens concur?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania



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I work on 403(b) plans exclusively.  403(b) plans had been excluded from the LTPT rule prior to SECURE 2.0 but now these plans have been included.  I agree that the use of the "20 hour rule" in this new context will be a challenge and will discuss not using it with sponsors.  The "universal availability" rules cause all employees to be eligible for 403(b) unless the 20 hour rule (1000 hours in a year) is in the plan.  The IRS shares your disdain for the 20 hour rule, Belgarath, and this item is on audit lists as it is frequently used incorrectly or the recordkeeping is inadequate.  The "good news" for 403(b) plans is that we don't have to test deferrals because of universal availability so the negatives in avoiding the 20 hour rule will "only" occur with matching or other employer contributions.

Patricia Neal Jensen, JD

Vice President and Nonprofit Practice Leader

|Future Plan, an Ascensus Company

21031 Ventura Blvd., 12th Floor

Woodland Hills, CA 91364

E patricia.jensen@futureplan.com

P 949-325-6727

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The LTPT rule trumps the 20-hour exclusion rule and the student exclusion rule thanks to SECURE 2.0's change to the last sentence of Section 403(b)(12)(A).  I agree that it is easier not impose a service requirement on elective deferrals.

I will add a somewhat related question:  Has anyone seen anything about how the LTPT rule applies to employers with more than one ERISA 403(b) plan?  I don't see an exception in the new ERISA § 202(c) that allows a 403(b) plan to satisfy the LTPT rule for employees who are eligible to participation in another employer 403(b), 457(b), or 401(k) plan.  Without such an exception, this could require major changes for employers with more than one 403(b) plan.  Thoughts?  Am I missing something (I hope)?



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