LTPT and Automatic Enrollment (and vesting)

If a plan uses automatic enrollment, are employees that become eligible under the LTPT rules required to be automatically enrolled?  

Another question...has there been any change in the LTPT vesting rules with respect to a former-LTPT who becomes a "regular participant" and the number of hours that they must meet to earn a year of vesting?  Is the hours required still 500 even if the former-LTPT has met the plan's normal eligibility requirements?

Thanks very much.

The overworked brain in my head on a Friday afternoon thinks, there's a big difference in the 2 year LTPT rule versus the 3 year LTPT rule because of the way people with 3 years of vesting get their choice of how to deal with a vesting schedule change.  If I got vesting credit for 3 years of 501 hours why would I switch, such as if a plan said the heck with the LTPT rules and expanded "normal" eligibility.

Interesting Bri.  Actually what I was thinking was something like this.  My first year with the company I work 1000 hours so I'm a "regular participant" and I also have 1 year of vesting.  Under the plan's 6-year graded schedule I am 0% vested.  For the next three years I work less than 1000 hours.  My co-worker for the last 3 years worked 500 hours each year, then works a year with 1000 hours.  Now after 4 years we are both "regular participants" but now my co-worker (who used to be my friend) is 60% vested and I'm still 0% vested, even though over the last four years we've essentially worked the same number of hours, just in different sequence.

Barring additional guidance/technical correction, this falls under the "life ain't fair" exception to life. 

You need to separate the purpose of the LPTP rules (to allow the employee to simply make elective deferrals) from the regular rules governing eligibility to become vested in and receive an allocation of employer contributions.  All elective deferrals are required to be 100% vested at all times. As far as vesting in other employer contributions, subject to the provisions of the plan and plan qualification rules based on the particular plan design, such persons can be required to complete 1 year of eligibility service (1,000 hour) to become eligible for the employer contribution portion of the plan, to receive vesting credit with respect to such portion and to be eligible to share in the allocation of employer contributions under the plan. 

On 8/28/2023 at 2:01 PM, rocknrolls2 said:

You need to separate the purpose of the LPTP rules (to allow the employee to simply make elective deferrals) from the regular rules governing eligibility to become vested in and receive an allocation of employer contributions.

An LTPT employee earns a year of vesting with 500 hours regardless of whether they are permitted to receive employer contributions.  My question, for which I'm assuming more guidance is needed, is how is a former LTPT treated for vesting if at some point in the future they do meet the plan's "regular" eligibility requirements. 

FYI, in the TE/GE regional conference on August 30th the IRS said LTPT guidance is expected to be released "towards the end of the year" but that was not guaranteed, so we in the industry and our clients are on our own for now.

Gilmore, my understanding is an LTPT employee keeps any vesting years of service earned by while the employee is classified as an LTPT and these years are added to any year of vesting service earned by that employee should the employee subsequently qualify for participation under the plan's rules for eligibility and entry.

Once an employee meets the plan's rules for eligibility and entry, there is no going back to LTPT status.

Regarding your auto-enrollment question, my understanding we look to the plan's rules for eligibility and entry.  Keep in mind, no one is auto-enrolled until they meet the eligibility and entry rules.  If an LTPT employee meets these rules, they are auto-enrolled just like any other employee and they are no longer LTPT employees.  If they do not meet these rules, they are not auto-enrolled.

Note that several practitioners have suggested adopting eligibility and entry rules that are sufficiently liberal so that all employees will become eligible under the plan's rules before they would be considered LTPT employees.  Essentially, the plan by design would have no LTPT employees.

It will be interesting to see what guidance we get for different atypical situations like:

• Application of LTPT rules of parity to LTPT vesting service accruals (where a break in service is a year with less than 500 hours)
• A terminated employee's eligibility service is wiped out by the rules of parity, and that employee is subsequently rehired.
• A terminated employee's vesting service is wiped out by the rules of parity after a total lump sum distribution, and that employee is subsequently rehired.
• Upon rehire an employee with a break in service must satisfy the eligibility requirements before re-entering the plan retroactively.
• An employee is in an excluded classification (other than bargaining or NRA):
  • Does LTPT classification supersede other exclusions by classification?
  • What if the employee met the plan eligibility requirements but was excluded by the classification, and then the employee became part-time and subsequently changed to a covered classification?
  • Will a non-service-related classification be allowed?

It also will be interesting to see what guidance is provided for any required plan language addressing LTPT employees.  It would seem to make sense that there would be some definition of LTPT status and eligibility to make deferrals.  Hopefully, there can be a simple way in a single section to list out all of the available exclusions/inclusions of LTPT employees from coverage, nondiscrimination testing, top heavy, match eligibility, non-elective employer contribution eligibility.

Oh, the anticipation!

36 minutes ago, Paul I said:

Gilmore, my understanding is an LTPT employee keeps any vesting years of service earned by while the employee is classified as an LTPT and these years are added to any year of vesting service earned by that employee should the employee subsequently qualify for participation under the plan's rules for eligibility and entry.

Thank you very much for this information Paul.  I thought I had read somewhere that a former LTPT, now a full participant, would continue to earn vesting service at 500 hours and not "shift" to needing 1000 hours?  Is that accurate or am I mistaken?  Thank you.

Gilmore, you are correct about the former LTPT employee continuing to accrue vesting service using the LTPT vesting rules, i.e., needing at least 500 hours of service.  I should have been more explicit in distinguishing post-LTPT eligibility versus vesting service.  This is destined to become a TPA/recordkeeper's nightmare.

Section 401(k)(15)(B)(iii) reads:

(iii) Vesting

For purposes of determining whether an employee described in clause (i) has a nonforfeitable right to employer contributions (other than contributions described in paragraph (3)(D)(i)) under the plan, each 12-month period for which the employee has at least 500 hours of service shall be treated as a year of service, and section 411(a)(6) shall be applied by substituting "at least 500 hours of service" for "more than 500 hours of service" in subparagraph (A) thereof.

and Section 401(k)(15)(B)(iv) reads:

(iv) Employees who become full-time employees

This subparagraph (other than clause (iii)) shall cease to apply to any employee as of the first plan year beginning after the plan year in which the employee meets the requirements of paragraph (2)(D) without regard to paragraph (2)(D)(ii).

1 hour ago, Paul I said:

This is destined to become a TPA/recordkeeper's nightmare.

Thank you again for this information.  This goes back to my original example above.  Not only a recordkeeping nightmare, but a potential employee morale nightmare for employees with different levels of vesting %s caused only due to the sequence of their years of service earned.

We use the Relius document and it does indicate that LTPT employees are auto enrolled.

For a plan with a cash-or-deferred arrangement established before December 29, 2022 (and so excepted from § 414A’s automatic-enrollment tax-qualification condition):

Could a plan provide an automatic-contribution arrangement for all or some of those who become eligible under full-time eligibility conditions,

while also providing no automatic-contribution arrangement for those eligible only under the long-term-part-time provision?

Please understand that I do not suggest this plan design; I seek only to learn whether it’s possible if it is what a plan sponsor wants.

I know that you do not need to cover everyone under the automatic-contribution arrangement, but in doing so you lose the benefit of the 6-month testing window if you are otherwise an EACA.  So I'm assuming in Nate's example with the Relius doc, if you do not include LTPT in the EACA you would lose the 6-month testing window, even though LTPTs are not part of coverage?

To correct my post, the Relius document does give a choice to exclude or include LTPT employees in automatic enrollment. 

So it appears the employees who can be treated differently for automatic enrollment are (1) LTPT employees and (2) disaggregated employees.  This is based on the automatic enrollment uniformity requirement.