Long-term part-time employees are the newest group of workers 401(k) sponsors must track, and the rule is easy to miss because it rarely announces itself. Nobody files a request. An hourly employee simply keeps working a modest schedule, year after year, until the plan owes them the right to defer. If your payroll system isn’t counting their hours the way the plan document counts them, you won’t know until an audit, a testing file, or an employee asks why they were never offered the plan.
This guide explains what the long-term part-time (LTPT) rule requires, why it is a fiduciary tracking duty rather than a payroll setting, and what sponsors need to keep on file to show the plan was operated correctly.
What the long-term part-time rule actually changed
Before the SECURE Act, most 401(k) plans could keep part-time workers out indefinitely by requiring a year of service with a standard hours threshold. An employee who never reached that threshold in a single year never became eligible.
The SECURE Act created a second, parallel path to eligibility for elective deferrals: employees who work a lower number of hours in each of several consecutive years must be allowed to make salary deferrals, even if they never hit the plan’s regular hours requirement. SECURE 2.0 then shortened the number of consecutive years required and extended the rule to ERISA-covered 403(b) plans. The plan’s age requirement still applies, and only service after the rule’s effective dates counts toward the consecutive-year requirement.
The exact hours threshold, the number of years and the effective dates depend on plan type and plan year, so confirm the current figures with your document provider rather than relying on a number you saw in an article.
Why this is a fiduciary duty, not a payroll setting
Eligibility is an operational term of the plan. Failing to let an eligible employee defer is an operational failure, the same category as the eligibility and entry date mistakes covered in our guide to 401(k) eligibility and entry dates. It typically requires a corrective contribution for the missed deferral opportunity, and it often goes unnoticed for years because the affected employees are the ones least likely to ask.
The problem is that the data needed to apply the rule lives only with the employer. A recordkeeper sees the payroll file you send; it doesn’t see hours for employees who were never enrolled. That makes LTPT tracking one of the clearest examples of a duty that stays with the sponsor unless a named administrator is actively working the data.
How LTPT tracking typically goes wrong
- Hours aren’t sent for non-participants. The payroll feed only includes enrolled employees, so nobody is counting hours for the people the rule was written for.
- Hours reset at rehire. A seasonal worker who leaves and returns gets a new hire date, and prior qualifying years disappear. See our guide to rehires and breaks in service.
- A “part-time” class exclusion is used as a workaround. Excluding “part-time employees” as a classification generally doesn’t avoid the rule when the classification really works as an hours test.
- Multiple payroll systems or entities. Hours worked across related employers in a controlled group may have to be combined, and nobody owns the combined count.
- The document and the practice don’t match. The plan was amended for LTPT, but payroll never changed how it flags eligibility.
What sponsors must track: seven items
1. Hours for every employee, not just participants
The count has to include every employee who is paid, including those who never enrolled and those excluded under the regular eligibility rule. This is the foundation of everything else.
2. The service-counting method in your plan document
Plans count service by actual hours or by an equivalency method. Payroll must use the same method, applied to the same computation period, that the document specifies.
3. Consecutive qualifying years, per employee
Track each year in which the employee met the LTPT hours threshold, and whether those years are consecutive under the plan’s rules. A spreadsheet that shows “hours this year” only is not enough.
4. The date each employee becomes LTPT-eligible
Once the requirement is met, the employee enters the plan on the next entry date set by the document. That date drives the enrollment notice, the deferral election and any automatic enrollment.
5. Whether the employee later meets the regular eligibility rule
An LTPT employee who later works enough hours to satisfy the plan’s standard service requirement generally moves into regular participant status, which can change employer contribution and testing treatment.
6. Vesting service for any employer contributions
The plan is not required to give LTPT employees employer contributions. If it does, their vesting service is generally credited under the LTPT rules, so vesting records have to follow a different counting track than regular participants.
7. Testing and top-heavy treatment
The rules allow plans to exclude LTPT employees from certain nondiscrimination and top-heavy testing, but only if the testing file correctly identifies who is LTPT. Our nondiscrimination testing guide explains why the census must include everyone paid during the year.
Notices and disclosures once an LTPT employee is eligible
An LTPT employee who becomes eligible is a participant for disclosure purposes. That typically means the enrollment materials, the summary plan description, the participant fee disclosure, and, where the plan uses them, automatic enrollment or safe harbor notices. The distribution list should come from the eligibility tracking itself, not the active-participant roster.
An 8-step LTPT self-check
- Confirm the plan document has been amended for LTPT and note which options it elected.
- Confirm payroll sends hours for all employees, including non-participants.
- Match the payroll counting method to the document’s service-crediting method.
- Build a per-employee history of qualifying years since the effective date.
- Check rehires against their original hire dates.
- Combine hours across related entities if the plan covers a controlled group.
- Reconcile the list of LTPT-eligible employees to who actually received enrollment materials.
- Confirm the testing census flags LTPT employees correctly.
If step 7 turns up someone who should have been offered the plan and wasn’t, treat it as a correction project, not a quiet enrollment. Our guide to participant data reconciliation shows how to line up payroll and recordkeeper records first.
What you can delegate and what you can’t
Deciding whether to offer employer contributions to LTPT employees, and which document options to elect, is a settlor decision the employer makes. Supplying accurate hours, hire dates and entity information is employer-only data no provider can create. Everything between those two, including tracking qualifying years, determining eligibility dates, issuing notices, and flagging testing treatment, can be handled by a 3(16) plan administrator that takes responsibility for it rather than processing whatever file arrives.
Where Admin316 fits
Most providers treat LTPT as a payroll question and leave the sponsor holding the eligibility risk. Admin316 works the eligibility data as part of its 401(k) plan administration and, unlike most providers, accepts appointment as the plan’s ERISA 402(a) named fiduciary, so the responsibility for running the plan correctly is formally shared, not just advised on.
If you aren’t sure your payroll is counting hours for the employees the LTPT rule covers, book a plan review with Admin316 and we’ll walk through your document, your payroll feed and your eligibility records together.
