SECURE ACT - LTPT Employees

Plan has immediate eligibility.  However, Part Time and Seasonal Employees are excluded.  Obviously if the employee in these groups complete 1,000, they were eligible for the plan. There seems to be different opinions if the LTPT rule applies to groups specially excluded from the plan.   

Question, if the plan specially excludes a group (part time and/or seasonal/interns etc.), does the new LTPT rule apply to this group.

Thank You.

Does the plan document say that part time and seasonal employees are excluded? I believe that IRS guidance will require these p/t EEs to be eligible to participate after working the required number of consecutive years with 500 hours. They can still be excluded from employer contributions if they don't work 1,000 hours in a year. That is my take on it. 

You cannot categorically exclude part-time/seasonal in your document unless it is with the caveat that if they complete 1,000 in an eligibility computation period then they enter the plan. I would think the 500 hour LTPT rules now supplement this such that you still cannot categorically exclude solely on the PT/S classification. 

Absent the conclusion Cuse peaks so eloquently of, what would the point of the LTPT legislation be?  I think it clear that is is a clear indication of Congress' intent that "thou shalt not exclude LTPT'ers."  Exclude who you want for "normal" participation, but LTPT will override...

And by the way, in the 403(b) world with universal availability, S2.0 specifically made these rules applicable in that world to clear indicate that it overrides the 20 hour per week exclusion allowed as an exception to universal availability.

Now what if we change this situation. Plan has 21/1 eligibility requirement for all purposes. Suppose the Plan excludes truck drivers as a class, for all purposes, regardless of how many years of service. If they have a year of service, still currently excluded for all purposes. Does the LTPT now require the truck drivers with 500/3 years (or 500/2 under SECURE 2.0) to be allowed to defer? I'd love some IRS clarification on this.

I think if the wor "time" is in  the excluded"class"  the LTPT rules bring them in.  In other words, truck trivers" as a class cold be excluded - also all "Clowns."  Subject, of course to the old non-discrimination rules for class exclusions.

Word and could

17 hours ago, MoJo said:

Absent the conclusion Cuse peaks so eloquently of, what would the point of the LTPT legislation be?  I think it clear that is is a clear indication of Congress' intent that "thou shalt not exclude LTPT'ers."  Exclude who you want for "normal" participation, but LTPT will override...

And by the way, in the 403(b) world with universal availability, S2.0 specifically made these rules applicable in that world to clear indicate that it overrides the 20 hour per week exclusion allowed as an exception to universal availability.

MoJo - I'm neither disagreeing nor agreeing - just discussing/blathering, since I'm uncertain on all of this - as many of us are! Ultimately, I hopefully expect that the IRS will issue some sort of guidance, but WHEN (and if) is certainly up in the air. In the meantime, the 403(b) change is an hours-based issue, which seems to agree with the (to me) reasonable interpretation as mentioned by CUSE above. The needle on my compass wavers a lot more on the issue of whether a valid exclusion category that is NOT based on hours, is valid for the LTPT deferral only. Right now, I lean toward such an exclusion as being valid for continuing to exclude LTPT's for deferrals, but I surely wouldn't want to bet the farm on it. Frankly, if the IRS comes down on the side of covering the LTPT's based solely on hours, and overriding other exclusion categories, seems to me it'll be easier (or at least more consistent) to administer - and to explain to clients.

Anyone with IRS contacts had any conversations to even get a HINT of where IRS might be leaning at this point? If I were forced to make a call at this point, I'd say the non-hours based class exclusions would also apply to LTPT deferrals, but I'm sure a lot of people would disagree. 

57 minutes ago, Belgarath said:

MoJo - I'm neither disagreeing nor agreeing - just discussing/blathering, since I'm uncertain on all of this - as many of us are! Ultimately, I hopefully expect that the IRS will issue some sort of guidance, but WHEN (and if) is certainly up in the air. In the meantime, the 403(b) change is an hours-based issue, which seems to agree with the (to me) reasonable interpretation as mentioned by CUSE above. The needle on my compass wavers a lot more on the issue of whether a valid exclusion category that is NOT based on hours, is valid for the LTPT deferral only. Right now, I lean toward such an exclusion as being valid for continuing to exclude LTPT's for deferrals, but I surely wouldn't want to bet the farm on it. Frankly, if the IRS comes down on the side of covering the LTPT's based solely on hours, and overriding other exclusion categories, seems to me it'll be easier (or at least more consistent) to administer - and to explain to clients.

Anyone with IRS contacts had any conversations to even get a HINT of where IRS might be leaning at this point? If I were forced to make a call at this point, I'd say the non-hours based class exclusions would also apply to LTPT deferrals, but I'm sure a lot of people would disagree. 

I too am looking for guidance - but if you read the text of the act with respect to this, is simply says that *if* you get 500 hours in the requisite number of years you *must* be allowed to participate.  It doesn't say "unless otherwise excluded" (except, those under age 21 if the plan so provides.) I find it hard to believe the IRS will "regulate" such an exception.

Yes, I had read this, and I completely understand your point. Without question, a reasonable interpretation, which may well be the correct interpretation. I'm including the text below, for anyone reading this string. Thanks for your observations.

Hey, that top heavy paragraph (ii) hints that you can include (not electing to exclude) the LTPT balances in the top heavy ratio, but wouldn't have to make a THM or increase vesting if applicable for them. 

Seems best of both there - maybe the LTPT drop you from 61 to 59% and nobody gets a THM.  But if they still leave you at 61 while including them, they don't get their 3%.

If one is saying that LTPTers would come in based on 500 hours, even if their class (drivers, sales, division, etc.) is otherwise excluded, then all of the FTers in that class would have to come in for deferrals as well.

I would think if a group is excluded (not just based on hours) then the LTPTers in that would be excluded no matter what their hours are.

While we have to see what the IRS says, but I agree with acm_acm as far as consistency. Either all LTPT and full-time EEs must be covered regardless of the non-service based class exclusion or the non-service based exclusion applies regardless of how much service an employee has (and I think this latter one is the correct interpretation).

I base this on looking at the law in context. The following is 401(k) as modified by SECURE 1.0. What was added was (ii). If you can exclude full time EEs who are in an excluded non-service based class under (i) (which we all agree is allowed), then how you do interpret (ii) to end up with a different rule for LTPT EEs? It does say subject to paragraph (15), but I don't see anything in (15) that alters the structure of (i) and (ii) below. 

(D)which does not require, as a condition of participation in the arrangement, that an employee complete a period of service with the employer (or employers) maintaining the plan extending beyond the close of the earlier of—

The conundrum for rule-making is companies have used classifications to keep part-timers out of their plans.  The intent of the LTPT provisions is to force companies to offer the opportunity to defer to part-timers.  Unfortunately, the definition of a LTPT employee is heavily service-based and ignores how non-service-based exclusions may apply.

Let's hope the rules will not add too much of a work load to determine compliance.  Something simple may be to allow non-service-based exclusions for LTPTs such as geographic location where all other employees are subject to the same exclusion.

The IRS likes to use testing formulas and hopefully they resist the urge to create mathematical LTPT coverage tests.  I can imagine a nightmare like identifying excludable and nonexcludable LTPTs in a plan for a group of LTPTs that represents more than the safe harbor percentage using the nondiscriminatory classification test, and then applying a percentage coverage threshold.  😱

Consider also that it seems unlikely that useful guidance would be published before 2024.

A plan sponsor or a plan's administrator might want advice from its lawyer's, certified public accountant's, enrolled agent's, enrolled actuary's, or other recognized practitioner's written advice to support reasonable cause for relying on a good-faith interpretation.

On 7/20/2023 at 12:03 PM, acm_acm said:

If one is saying that LTPTers would come in based on 500 hours, even if their class (drivers, sales, division, etc.) is otherwise excluded, then all of the FTers in that class would have to come in for deferrals as well.

I would think if a group is excluded (not just based on hours) then the LTPTers in that would be excluded no matter what their hours are.

From all the research I have done, if you exclude a class of EEs from participating in the plan, if the LTPT EE is part of that class, you can continue to exclude them from participating in the plan.  

With respect to LTPT Employees, do they count in the participant count to determine small plan vs. large plan filing of Form 5500 if they don't defer?

Starting with the 2023 forms, only participants with an account balance are counted to determine a plan's filing status (large or small). So if they never defer, and never get any employer contributions, they won't count - but the same is true for all participants, not just LTPT.

On 8/25/2023 at 12:09 PM, Rassler said:

From all the research I have done, if you exclude a class of EEs from participating in the plan, if the LTPT EE is part of that class, you can continue to exclude them from participating in the plan.  

While this seems like a reasonable conclusion, there is no guidance from IRS on this point yet.

On 7/20/2023 at 11:03 AM, acm_acm said:

If one is saying that LTPTers would come in based on 500 hours, even if their class (drivers, sales, division, etc.) is otherwise excluded, then all of the FTers in that class would have to come in for deferrals as well.

I would think if a group is excluded (not just based on hours) then the LTPTers in that would be excluded no matter what their hours are.

If the "powers that be" wish to mandate a LTPTer be eligible with 501 hours of annual service in 3 consecutive years, would they not want to mandate the same 401(k) benefit be accessible to a LTFTer who gets denied the very same plan with the very same 3 years of tenure, just due to their job description as a driver, for example?

If a potential exclusion is determined by something other than a measure of service:

Am I right in guessing an employer—not a service provider—controls whether to apply the exclusion, or to override it to meet ERISA § 202(b)-(c)?

If that is so, are the interpretation challenges about the advice one provides a client?

14 hours ago, PhilyK said:

If the "powers that be" wish to mandate a LTPTer be eligible with 501 hours of annual service in 3 consecutive years, would they not want to mandate the same 401(k) benefit be accessible to a LTFTer who gets denied the very same plan with the very same 3 years of tenure, just due to their job description as a driver, for example?

I think the point is that one can exclude a class of employees (drivers, sales, etc.) and then neither FTers or LTPTers in that class would enter the plan.

Keep in mind that the LTPT rules were designed by the Legislative Branch and not by the IRS.  Part of the design was to provide LTPT employees access to salary deferrals without disrupting existing rules for qualified plans.  One of the features of the LTPT rules is the employees who are LTPTers are excluded from all of the testing applicable to existing qualified plans and most importantly from coverage testing.

We have not yet heard from the IRS about how classification exclusions (other than bargaining and NRAs with no US income) will operate with respect to LTPT employees.  It does not make sense that a classification such as job title or geographic location is overridden by LTPT as long as that classification is not discriminatory.  If a plan covers employees in Oklahoma and excludes employees in Florida, why should an LTPT in Florida be allowed to defer?

The fear in Congress is the potential situation in this example is where most of the Florida employees are LTPT employees and the classification provides a way of not allowing them to defer.  But, Congress wants LTPT employees to be able to defer. 

If everyone in the classification is excluded from participation, that sets up an issue where the LTPT employees would be considered Excludable in coverage testing even if they defer, but the FT employees who are otherwise eligible for the plan except for the classification would be considered Non-Excludable, Not Benefiting.  This could be an incentive to use the LTPT rules.

Let's see how imaginative the IRS will be when providing guidance on this topic.

I have a client who sponsors a Defined Benefit plan only.  He (the owner) is the only Participant, because the eligibility is 21&1 with 1,000 hours.  He has a long term part time employee who usually works 500+ hours, but always under 1,000 hours, so therefore she is technically not "covered" by a qualified retirement plan.

Does he have to set up an opportunity for her to defer, either under a qualified 401(k) plan (which then must have auto enrollment), or under our state's mandatory CalSavers Plan? He does not want to contribute to a 401(k) plan himself.

The LTPT rules only apply to a plan with a 401(k) feature in 2024, and to a 401(k) or 403(b) starting in 2025.

This is a question related to California and the CalSavers rules, which say that you must offer employees an opportunity to defer.  Does anyone know if the Cal Savers rules apply to employees who work under 1,000 hours?