Long Term Part Time Employees

[52626]

Immediate Eligibility - plan excludes seasonal employees

In the "good ole" days, employer only had to worry about enrolling these employees if they worked 1,000 hours now they have to contend with the 500 rule. The problem is seasonal employees leave and come back on a regular basis

Hired 5/1/2023 

1. Need to look at hours worked from 5/1/2023 - 4/30/2024. Participant worked a total of 650 hours. However he left and came back twice during this period

2. Plan switches to plan year  - The plan then measures hours from 1/1/2024  to 12/31/2024 - assume during this period he works 650 hours.

Participant would be eligible to enter 1/1/2025.

Am I looking at this correctly?

The fact the employee left and came back during the initial 12 month period, does his hours pre termination count towards the 500,or does the counting start all over?

I thought I read LTPTE rules do not include the break-in service rules or concept.

Thanks

[MoJo]

You got it.

[justanotheradmin]

I disagree. 

It says "consecutive 12 month periods" https://www.federalregister.gov/documents/2023/11/27/2023-25987/long-term-part-time-employee-rules-for-cash-or-deferred-arrangements-under-section-401k

So unlike regular eligibility, in which many plans using a shifting method, and the first 12 months and the second 12 months overlap because of the change over to the plan year, I don't see that as how LTPT rules are applied. 

Its much simpler than your analysis. 

For a calendar year plan, with a person's original date of hire in 2023:

Did the person work over 500 hours in 2023? yes or no?

Did the person work over 500 hours in 2024? yes or no?

Don't worry about breaks in service, leaving and coming back, anniversary dates, etc. 

 

[MoJo]

6 minutes ago, justanotheradmin said:

I disagree. 

And I with your analysis.  Pay particular attention to the section discussing off-calendar year plans - and based on doing it as the OP says, the IRS confirmed that an LTPT could have actually become eligible in 2023.  It is specifically because of the flip from anniversary date to plan year that this occurs....

 

You use the normal eligibility computation period per the plan.  If it flips to plan year, the OP is correct.

[justanotheradmin]

I take that back. I see that is has to be from the date the employee commmenced, per §410(a)(3)(A). my apologies!

 

[justanotheradmin]

Upon further reading, I think doing it my original way is fine too, as long as that's what the plan document calls for. Though I suspect many will still use the original computation method, whatever it uses for regular eligibility computations, for non LTPT. 

 

"I.R.C. § 410(a)(3)(A) General Rule — 

For purposes of this subsection, the term “year of service” means a 12-month period during which the employee has not less than 1,000 hours of service. For purposes of this paragraph, computation of any 12-month period shall be made with reference to the date on which the employee's employment commenced, except that, under regulations prescribed by the Secretary of Labor, such computation may be made by reference to the first day of a plan year in the case of an employee who does not complete 1,000 hours of service during the 12-month period beginning on the date his employment commenced."

[MoJo]

21 minutes ago, justanotheradmin said:

Upon further reading, I think doing it my original way is fine too, as long as that's what the plan document calls for. Though I suspect many will still use the original computation method, whatever it uses for regular eligibility computations, for non LTPT. 

 

"I.R.C. § 410(a)(3)(A) General Rule — 

For purposes of this subsection, the term “year of service” means a 12-month period during which the employee has not less than 1,000 hours of service. For purposes of this paragraph, computation of any 12-month period shall be made with reference to the date on which the employee's employment commenced, except that, under regulations prescribed by the Secretary of Labor, such computation may be made by reference to the first day of a plan year in the case of an employee who does not complete 1,000 hours of service during the 12-month period beginning on the date his employment commenced."

Yes, but only if the plan provides for anniversary date eligibility on-going (at least for part-timers).  The problem with that is that the plan administrator must track eligibility computation periods potentially ending on 365 different days.  None of our plan sponsors want to do that.

[justanotheradmin]

well, if the employee doesn't have 1,000 hours by their first anniversary date, why couldn't the first computation period be 1/1 -12/31? assuming a calendar year plan? 

I understand the plan is allowed to shift the second computation period, but what is preventing them from going back and considering the first period to be 1/1 -12/31? Just for LTPT purposes. 

Using the dates in the example: 

DOH 5/1/2023 - if they worked 1,000 hours by 4/30/2024 then they are subject to regular elig rules for the plan anyhow, not the LTPT. But if they didn't:

Then the first period to look at could be calendar/plan year 2023, which is 1/1/2023-12/31/2023. 

Did they work 500 hours in that period? Yes or No?

And then the second period would be calendar plan year 2024, 

Did they work 500 hours in that period? yes or no? 

The plan document would have to be written to apply such a computation period method just for LTPT employees, but I think saying to an employer - just tell me how many hours they worked in each year, period, is an easier thing when evaluating who might have to be offered the plan because they satisfied LTPT status. 

[justanotheradmin]

Example: 

basic plan, 1 year of service (1,000 hours) eligibility requirement, age 21, semi annual entry etc. 

 

part time employee hired 5/1/2024,

Works 300 hours by 12/31/2024. 

Works 300 hours from 1/1/2025 - 4/30/2025

Works 450 hours from 5/1/2025 - 12/31/2025. 

 

Option A

If we use the more common 

First computation period is 5/1/24 - 4/30/2025, 600 hours: then yes over 500 hours, but less than 1,000

Second computation period is 1/1/2025 - 12/31/2025, 750 hours: yes over 500 hours, but less than 1,000. 

LTPT as of 1/1/2026 since two consecutive periods (as defined in the plan document as the overlapping periods as above)

 

 

Option B

Alternative version - if plan document allows:

Initial computation period for regular eligibility 5/1/2024 - 4/30/2025 less than 1,000 hours, so switch to LTPT analysis

First computation period for LTPT - 1/1/2024 - 12/31/2024, 300 hours: less than 500 hours

Second computation period - 1/1/2025 -12/31/2025, 750 hours: over 500 hours, less than 1,000

Third computation period - 1/1/2026 - 12/31/2026 If they  are over 500, then LTPT as of 1/1/27. If over 1,000 then regular part as of 1/1/2027

 

There are lots more ways to do it, but comparing just these two methods, option B gives an employer an extra year to figure it out. and I think is less likely to be done wrong. It gives a service provider a longer time as well to possibly notice and mention that someone might be a LTPT next year. So if a document provider can accommodate it, I think not using the shifting method, even if just for LTPT analysis, is a better way to go. 

 

[jsample]

Dumbest question of the day.  If they are excluded per the plan, why do they even need to be considered for LTPT?  Can they run coverage testing and not include the entire group if they pass every year?

According to IRS proposals, plans with immediate eligibility can still exclude a class of employees, even if some of those employees meet the eligibility requirements for long-term part-time (LTPT) participation. For example, a plan might exclude employees working in a specific business unit or division, as long as the exclusion isn't based on age or service

[R Griffith]

@jsample - I believe the OP mentioned seasonal employee, and most people would agree that seasonal is a service exclusion.  But you are correct, you can exclude classes of employees.  The one that I have heard debated is Interns - is that a service exclusion or class exclusion?  I could go either way in my arguments.