IRS issues limited guidance on LTPT worker rules for 403(b) plans 

October 17, 2024

IRS Notice 2024-73 provides guidance on the eligibility rules for long-term, part-time (LTPT) employees in ERISA-covered 403(b) plans under the SECURE 2.0 Act (Div. T of Pub. L. No. 117-328). The notice focuses primarily on how the new LTPT eligibility rules relate to the universal availability requirement for 403(b) plans. IRS also confirms that final regulations on the LTPT requirements for 401(k) plans — first added to the Internal Revenue Code (IRC) by the Setting Every Community Up for Retirement Enhancement Act of 2019 (Division O of Pub. L. No. 116-94) (SECURE 1.0) — won’t apply before the 2026 plan year. IRS is accepting comments on the notice until Dec. 20, 2024.

Under SECURE 2.0, ERISA-covered cash or deferred arrangements and other salary-reduction arrangements — including 403(b) plans — can’t exclude part-time workers from contributing after they’ve worked two consecutive 12-month periods with at least 500 hours of service. The rule applies to plan years starting after Dec. 31, 2024. Years of service beginning before Jan. 1, 2023, are disregarded when determining whether an employee has met the requirement. The rule applies only to the salary deferral portion of a plan. Employers can limit eligibility for matching and nonelective contributions to employees at least 21 years old who complete a year of service (or two years of service if the contributions are immediately 100% vested).

SECURE 1.0 added similar LTPT eligibility rules for 401(k) plans to the IRC, which apply to plan years starting after Dec. 31, 2023. IRS proposed regulations on the LTPT rules for 401(k) plans at the end of 2023, but the proposal didn’t apply to 403(b) plans.

Section 403(b) plans must comply with the universal availability requirement, which says that if any employee of an employer is eligible to make elective deferrals to a 403(b) plan, then all employees must have the right to do so, subject to certain exceptions. Notice 2024-73 addresses how the LTPT rule relates to the exceptions for employees who normally work fewer than 20 hours per week and for student employees. The notice clarifies the following:

• Part-time workers who normally work fewer than 20 hours per week must be allowed to contribute after they satisfy the requirements to be LTPT employees, even if they continue working fewer than 20 hours per week. (Plans may continue to exclude all part-time workers who don’t satisfy the LTPT requirements without violating the universal availability requirement.)
• Plans that exclude student employees don’t have to let those employees contribute after they become LTPT employees.

Notice 2024-73 also confirms the following:

• SECURE 2.0’s LTPT employee rules don’t apply to 403(b) plans not subject to ERISA.
• A 403(b) plan that offers matching contributions or the option to make after-tax contributions can exclude LTPT employees from the actual contribution percentage (ACP) test.
• If a 403(b) plan that offers matching contributions is designed to satisfy an ACP safe harbor, the plan can exclude LTPT employees from receiving safe harbor contributions.

IRS intends to issue proposed regulations on the LTPT eligibility rules for 403(b) plans. The regulations will address the universal availability requirement and provide more generally applicable guidance on the LTPT rules for 403(b) plans. IRS anticipates that these proposed regulations will be similar to the agency’s forthcoming final regulations on the LTPT rules for 401(k) plans.

IRS is requesting comments on the contents of the notice and the LTPT employee rules for 403(b) plans in general through Dec. 20, 2024. The notice specifically requests comments on how the LTPT employee rules under ERISA and the IRC should be applied differently.

• Notice 2024-73 (IRS, Oct. 3, 2024)
• Div. T of Pub. L. No. 117-328, the SECURE 2.0 Act of 2022 (Congress, Dec. 29, 2022)

• IRS proposes long-term, part-time worker 401(k) eligibility rules (Jan. 29, 2024)
• Viewing SECURE 2.0 through a 403(b) lens (May 22, 2023)
• User’s guide to SECURE 2.0 (regularly updated)