Long Term Part Time Employee

Suppose you have a small 401(k) plan that has been in place for 10 years.

There is an employee who has worked about 700 hours per year for 4 years now and has never been eligible because of the one year / 1,000 hour requirement.

My understanding is that the plan does not need to provide employer contributions but does need to offer the employee the ability to fund salary deferral contributions.

Question: Can the employer fund 3% of salary contributions to LTPT employees if it wants to? If so, would those employer contributions be subject to the gateway and rate group tests of 401(a)4? Employer contribution test of 410b? I would think not because those contributions are not mandatory to begin with.

Does anyone agree / disagree?

Thanks!

The LTPT rules are designed to create an opportunity for them to defer, and a selling point for this is the LTPTs can be excluded from all of the other requirements to provide benefits and for compliance testing.

My understanding is for LTPT employees, once you move beyond providing the opportunity to defer, they will be treated as any other employees eligible for those other benefits.

2 hours ago, Dougsbpc said:

Can the employer fund 3% of salary contributions to LTPT employees if it wants to?

Yes

2 hours ago, Dougsbpc said:

If so, would those employer contributions be subject to the gateway and rate group tests of 401(a)4? Employer contribution test of 410b?

No. BUT this is only the case if the employees are eligible solely because they met the LTPT criteria, and only if the employer elects to exclude LTPTEs from the application of ADP/ACP, 401(a)(4), 410(b), and the 401(k)/(m) safe harbors.

See 1.401(k)-5(f)(1) of the proposed regulations:
https://www.federalregister.gov/d/2023-25987/p-230

Or they could be carved out of general testing as otherwise excludable.