On November 27, 2023, the U.S. Internal Revenue Service (IRS) released long-anticipated proposed regulations regarding eligibility requirements for long-term, part-time employees (LTPTEs) for cash or deferred arrangements (CODAs) under Section 401(k) of the Internal Revenue Code (the Code). Historically, the Code has allowed 401(k) plans to exclude employees from eligibility until the later of attainment of age 21 or completion of a 12-month period during which the employee has at least 1,000 hours of service, which in practice allowed plan sponsors to exclude many part-time employees from 401(k) plan participation. The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) and the SECURE 2.0 Act of 2022 (SECURE 2.0) reduced the service requirement for LTPTEs and provided other special rules for participation of these employees. These proposed regulations reflect these changes, as described in further detail below, and may require immediate action by plan sponsors, as they are intended to go into effect January 1, 2024.

Definition of an LPTPE

Pursuant to the changes provided by the SECURE Act and SECURE 2.0, for plan years starting on or after January 1, 2024, employees who complete at least 500 hours of service during each of three consecutive 12-month periods and attain age 21 by the last of the 12-month periods must be eligible to participate in CODAs under Section 401(k). For plan years starting after January 1, 2025, employees who complete at least 500 hours of service during each of two consecutive 12-month periods and attain age 21 by the last of the 12-month periods must be eligible to participate. In either case, such employees are known as LTPTEs. A participant’s status as an LTPTE is important because an LTPTE is counted as a participant for some purposes, but not others, as discussed below.

While a plan must start counting from the employee’s hire date, the computation period can switch from anniversary year to plan year if stated in the plan. Note that the 12-month periods with 500 hours of service must be consecutive for an employee to be an LTPTE, so if an employee works more than 500 hours in the first year but less than 500 hours the next year, the employee does not satisfy the LTPTE requirements. However, an employee retains LTPTE status once it has been attained, even if the employee terminates and is later rehired. An employee would be classified as an LTPTE under the proposed regulation only if the employee became eligible to participate in a CODA solely by reason of having met the LTPTE requirements. If an employee meets a different participation requirement for eligibility (i.e., the employee is immediately eligible to participate or completes 1,000 hours of service in a year), they would not be classified as an LTPTE. Employees subject to a collective bargaining agreement and nonresident aliens who do not receive U.S. source income are also excluded from LTPTE status. Finally, a plan may exclude an employee based on a job classification that is unrelated to age or service, and that employee would be ineligible to participate as an LTPTE.

Counting Hours for Eligibility

While the SECURE Act and SECURE 2.0 defined which employees are included or excluded from LTPTE status, they left open questions regarding how hours should be credited to determine eligibility to participate, especially for plans that use the elapsed time or hours equivalency methods. The proposed regulations confirm that those plan sponsors who rely on these rules do not need to begin counting hours of service and provide the following guidance:

  1. Elapsed Time Method

Under the elapsed time method of crediting service, eligibility to participate is not based on the actual completion of a specified number of hours of service; rather, a plan generally is required to consider the period of time that elapses while an employee is employed with the employer maintaining the plan.

Under the proposed regulations, an employee who becomes eligible to participate in a CODA under the elapsed time method would not be eligible to participate solely by reason of completing the applicable number of consecutive 12-month periods with at least 500 hours of service during each period and would not be an LPTPE (i.e., the employee would have the rights of a regular participant).

The proposed regulations do not amend the elapsed time rules contained in the Treasury Regulations, so a plan may not require any employee to complete more than a one-year period of service under the elapsed time method to be eligible to participate in a CODA.

        2. Hours Equivalency Method

A plan may specify an hours equivalency method as an alternative to actually counting hours to determine eligibility to participate. Under an equivalency method of crediting service, the hours of service credited to an employee for each month are not affected by whether the employee is classified by the employer or employers maintaining the plan as a part-time employee.

Under the proposed regulations, a plan may rely on an hours equivalency method to credit hours and determine an employee’s status as an LTPTE because this method credits an employee with a specific number of hours as the sole basis for determining eligibility, although the 500-hour requirement still applies.


Under the proposed regulations, each 12-month period for which an LTPTE is credited with at least 500 hours of service will be treated as a year of vesting service for determining the nonforfeitability of employer contributions allocated to the participant’s account. A plan may use any 12-consecutive month period that is permissible under the Code to determine an LTPTE’s vesting service.

If an employee is credited with 500 hours of service in a previous 12-month period but later completes 1,000 hours of service in a 12-month period, the employee would continue to be credited with a year of vesting service for any 12-month period during which the former-LTPTE is credited with at least 500 hours of service.

Exclusion of LTPTEs From Nondiscrimination, Coverage Testing, Safe-Harbor, and Top-Heavy Requirements

The proposed regulations permit plans to exclude LTPTEs from consideration when determining whether the plan satisfies the Code’s nondiscrimination and minimum coverage requirements. A plan may also exclude LTPTEs from receiving safe harbor contributions and for purposes of determining whether a plan satisfies the Code’s top-heavy benefit requirements.


  1. Nonelective and Matching Contributions

The proposed regulations confirm that nonelective and matching contributions are not required to be made on behalf of LTPTEs, even if those contributions are being made on behalf of other eligible employees participating in the plan.

         2. Catch-Up and Roth Contributions

The proposed regulations provide that an LTPTE is eligible to make catch-up contributions for a taxable year, so long as the employee attains 50 before the end of the employer’s taxable year.

The proposed regulations also clarify that a plan may permit LTPTEs to make designated Roth contributions. However, if the employer elects to exclude LTPTEs from nondiscrimination testing, LTPTEs would also be disregarded when determining whether the right to make Roth contributions satisfies the nondiscrimination testing requirements.

Effective Date

The proposed regulations are intended to take effect for plan years that begin on or after January 1, 2024. The IRS is accepting public comments on the proposed regulations until January 26, 2024. However, taxpayers may rely on the proposed regulations prior to final publication or until further guidance is issued.