Review service hours, 401(k) entry rules and 403(b) universal availability before 2025. Build an eligibility process that reaches employees on time.
October 14, 2024 · Financial Forte Staff
Historical article: prepared retrospectively using information available as of October 14, 2024.
An employee's “part-time” label is not a retirement-plan eligibility rule. A person can work a modest schedule for several years and become entitled to make salary deferrals even though they have never met the employer's usual full-time definition. As 2025 approaches, that distinction deserves a deliberate review of payroll records.
Audit service, age and plan entry rules now. The long-term, part-time framework changes from three qualifying years to two for 401(k) plan years beginning after 2024, and related rules begin applying to ERISA-covered 403(b) plans. New IRS guidance issued October 3, 2024, addresses important 403(b) details. The practical task is to identify who must receive an opportunity to participate and make the systems deliver it.[1][2]
Separate existing obligations from the 2025 change
For 401(k) plans, the long-term, part-time rules already create potential 2024 obligations based on the earlier three-year framework. An employer should not treat the upcoming two-year rule as the first time part-time service matters. Review any missed earlier eligibility as a separate correction question.[1]
The new framework generally looks at two consecutive 12-month periods with at least 500 hours of service in each, together with the applicable age requirement. The age threshold is generally 21. Actual service periods, entry dates, statutory exclusions and more generous plan terms matter; two calendar-year payroll totals are not automatically the complete eligibility determination.[1][2]
Consider a hypothetical employee, Riley, age 28, with 620 credited hours in 2023 and 680 in 2024. Assume those are the relevant consecutive service periods for a calendar-year 401(k), no exclusion applies, and the plan's entry provisions make January 1, 2025, the correct entry date. Riley needs the chance to make deferrals by that date under those assumptions. The two years count separately: a high total in one year does not make up for falling below 500 hours in the other.
An HR system that simply filters for employees with 1,000 hours in the last year would miss Riley. The error arises from the selection rule, not from the employee failing to ask about benefits. Employees should not have to know the technical service requirements before the employer checks their eligibility.
Do not copy the 401(k) screen into a 403(b)
403(b) plans have a separate universal-availability requirement for elective deferrals, with permitted exclusions and conditions. A generic waiting period borrowed from a 401(k) can therefore be wrong even before the new long-term, part-time rules are considered. Start with the 403(b)'s existing obligations.[2]
Notice 2024-73 explains how the new ERISA long-term, part-time rules interact with exclusions for employees who normally work less than 20 hours weekly and certain student employees. An ERISA-covered 403(b) generally cannot continue using the part-time exclusion to exclude someone who satisfies the new long-term, part-time participation rules. The notice permits the qualifying student-employee exclusion to continue even when the employee otherwise meets the long-term, part-time criteria. Confirm that the actual statutory student classification applies.[2]
The new ERISA framework does not apply identically to every 403(b). Governmental and certain church plans have different ERISA status, while the tax-law universal-availability requirements still need appropriate analysis. Confirm the plan's classification before using a standard implementation checklist.
The October guidance also announces that forthcoming final 401(k) long-term, part-time regulations will apply no earlier than plan years beginning in 2026. That does not postpone the statutory two-year change for 2025. Distinguish a regulation's applicability date from the law's existing implementation date.[2]
Design the handoff from payroll to enrollment
Create a review file with hire and rehire dates, age, relevant service periods, credited hours, eligibility category and the next required entry date. Include employees on irregular schedules and resolve missing records before deciding they failed to qualify. Ask the administrator how paid absences and other credited service should be handled.
Have payroll, HR and the third-party administrator agree on who makes the eligibility decision, who sends the enrollment opportunity and who confirms the election reached payroll. A correct spreadsheet that never produces an invitation does not complete the process.
For Riley, suppose eligible pay is $18,000 during the following year and Riley elects a 4% deferral. That would be $720 for a full year of that pay and election, equivalent to $60 monthly if pay and deferrals were evenly spread, before any later changes. The amount is an illustration of the employee's savings opportunity, not an automatic employer contribution or a calculation of any correction owed.
Eligibility to defer does not necessarily mean identical eligibility for employer contributions. Special rules can permit different treatment for employees eligible solely through the long-term, part-time provisions. Plan terms, nondiscrimination elections and changes in an employee's status require review before excluding anyone from a match or nonelective contribution.[1][2]
Measure whether the process actually works
For an ERISA-covered plan, following the governing documents and administering participation correctly are part of responsible oversight. A service provider can support the work, but the employer needs a clear assignment of duties and a way to verify performance. Retain the basis for eligibility decisions and escalate discrepancies promptly.[3]
Two practical measures are the number of employees whose service records remain unresolved and the number of eligible employees who received a timely opportunity to enroll. After entry, reconcile elections with deductions and deposits. A low participation rate means something different from a failure to provide access.
More inclusive access can improve how employees experience the benefit, but it also adds recordkeeping and communication work. Budget for that work and decide whether the current systems can handle it. Simplifying the plan's eligibility design may reduce administrative complexity, although the broader cost and testing effects should be modeled first.
Begin with the employees excluded by the current payroll filter. Confirm which rule applies, resolve their records and document the next action. That review is a concrete way to reduce correction risk while making the retirement benefit available to the people entitled to use it.
Related reading
- Your 2025 Retirement Plan Changes Need an Operational Check
- Prepare Plan Amendments Without Confusing Paperwork and Operations
Have more questions about part-time employee eligibility and retirement plan administration? Email Dave at dave@financialforte.com to discuss your questions and next steps.
The contact invitation is current; it does not imply this contact path existed on the historical reference date.
Educational information, not personalized investment, tax, legal or benefits advice. Examples use hypothetical assumptions. Verify current rules and your circumstances before acting.
Sources
- [1] Treasury/IRS: Proposed long-term, part-time 401(k) regulations — November 27, 2023; proposed rule
- [2] IRS Notice 2024-73: Long-term, part-time employee guidance — Released October 3, 2024; applicable plan years after December 31, 2024; 29 U.S.C. 1003: ERISA coverage — 2023 Code
- [3] Meeting Your Fiduciary Responsibilities — September 2021
