Executive Summary
The SECURE Act of 2019 and SECURE 2.0 of 2022 have fundamentally reshaped how 401(k) plans treat long-term, part-time (LTPT) employees. Historically, workers who never reached 1,000 hours in a single year could spend years with an employer and still be excluded from participating in the retirement plan.
Beginning with the 2024 plan year, these employees must now be allowed to make elective deferrals once they meet a newly defined LTPT service pattern, and the standard tightens further in 2025.
For plan sponsors, recordkeepers, and trust/custody providers, this shift creates both a compliance obligation and an operational challenge. LTPT employees must now be treated as “in the plan” for deferral purposes, while still being subject to different rules for employer contributions, coverage testing, and vesting.
This whitepaper translates the SECURE Acts’ legislative framework into practical, system level guidance for recordkeepers by:
- Defining LTPT status,
- Explaining eligibility and vesting logic, and
- Describing how to manage conversion when an LTPT employee later becomes full-time.
Throughout, we highlight how Enterprise Iron helps financial institutions and recordkeepers bridge the gap between regulatory language and system implementation, ensuring compliance, scalability, and operational efficiency.
WHITEPAPER
November 19, 2025
The New LTPT Landscape
The SECURE Acts created a new class of eligible participants, employees who may never work 1,000 hours in a single year yet demonstrate consistent part-time service over multiple years.
An LTPT employee is defined as someone who:
- Has reached age 21 by the end of the most recent 12-month period; and
- Has completed at least 500 hours of service in a series of consecutive 12-month periods (three consecutive periods for 2024, reduced to two for 2025); and
- Would otherwise be excluded under the plan’s standard eligibility rules.
This rule isn’t simply about “part-time” workers, it’s about employees who are consistently part-time. The legislative intent is clear, extend retirement plan access to a segment of the workforce that had been locked out by technical eligibility criteria.
For recordkeepers, this introduces an entirely new service tracking path that operates in parallel with traditional eligibility and vesting rules. The challenge lies not in understanding the law, but in maintaining dual service counters and entry logic that comply with evolving regulations.
From Legislation to Implementation: The SECURE Acts in Practice
The regulatory framework for LTPT participation is built primarily on four authorities:
- SECURE Act of 2019: Amended IRC §401(k) to require 401(k) plans to admit employees with at least 500 hours of service in three consecutive 12-month periods, starting with service from 2021 and first plan entry in 2024.
- SECURE 2.0 Act of 2022: Shortened the service requirement to two consecutive 12-month periods starting in 2025 and extended the rule to ERISA covered 403(b) plans.
- ERISA §202 and IRC Service-Crediting Rules: Continue to govern how years of service are calculated for both eligibility and vesting.
- IRS Notice 2024-73: Clarifies that final LTPT regulations will not apply before 2026 but confirms that 2024 and 2025 plan year requirements remain in effect.
Even though the IRS delayed the final rulemaking, plan sponsors and recordkeepers cannot wait to act. Systems must already be capable of tracking LTPT eligibility by 2024 and applying the two-year standard in 2025.
Operationalizing Eligibility: Tracking Hours and Entry Dates
Under the SECURE Acts, an LTPT employee becomes eligible to defer once they:
- Complete the required number of consecutive 12-month periods with at least 500 hours of service;
- Reach age 21 by the end of that period; and
- Arrive at the plan’s next entry date (e.g., January 1 or July 1).
This LTPT rule operates alongside the plan’s standard eligibility rule (commonly “age 21 and 1,000 hours in 12 months”). If an employee meets the standard rule first, the LTPT pathway never applies.
Together, these examples highlight the importance for precise, auditable tracking of service hours to manage overlapping eligibility rules effectively.
Navigating Vesting Rules for LTPT Participants
The SECURE Acts only guarantee LTPT employees the right to make elective deferrals, employer contributions remain subject to the plan’s standard eligibility requirements. However, once an LTPT participant does receive employer contributions, vesting service must be recognized under ERISA.
Typically, plans credit one year of vesting service for 1,000 hours of work. The IRS, however, has indicated that once an LTPT employee joins the plan, vesting service must accrue according to the plan’s method, whether hours-based or elapsed time, without indefinitely penalizing LTPT participants.
This example demonstrates the importance of accurately capturing prior LTPT service so that employees receive proper vesting credit once they become eligible for employer contributions, while maintaining audit ready records.
Managing the Transistion from LTPT to Full-Time Status
The legislation defines how LTPT employees enter the plan, but not how they “graduate” to full-time. Recordkeepers must therefore define operational triggers that transition participants cleanly between categories.
Common conversion triggers include:
- A move into a benefits-eligible payroll class; or
- Completion of a 1,000-hour year after initial LTPT participation.
When a trigger occurs, the system should freeze the LTPT history, begin a standard vesting computation period, and apply the plan’s normal vesting schedule (e.g., 3-year cliff or 6-year graded).
This scenario underscores the need for automated conversion logic that preserves historical LTPT service while applying the standard vesting schedule and ensuring a seamless transition to full-time status.
Building the Data Foundation for LTPT Compliance
Supporting LTPT compliance requires more than policy changes, it demands data architecture capable of sustaining parallel eligibility and vesting paths. Recordkeepers should ensure:
- Dual Counters: Maintain separate counters for 500-hour consecutive service (LTPT eligibility) and 1,000-hour or elapsed-time service (standard eligibility/vesting).
- Entry-Date Logic: Align system entry dates to plan rules, ensuring deferral eligibility occurs at the next valid entry point.
- Audit Trail: Preserve year-by-year hour totals from 2021 onward to support IRS and plan audits.
- Employer Contribution Flags: Clearly distinguish participants eligible for deferrals only versus those also eligible for employer contributions.
Conclusion
LTPT participants are now a permanent part of 401(k) administration. While the 500-hour, multi-year rule appears simple, its operational impact is far reaching. Recordkeepers must manage dual eligibility paths, deferral only participation, and full-time transitions, all with audit-ready precision.
By capturing hours beginning in 2021, separating LTPT and standard eligibility logic, and defining clear conversion triggers, recordkeepers can satisfy SECURE and SECURE 2.0 requirements without future rework.
About Enterprise Iron
Enterprise Iron brings deep expertise in retirement plan operations, systems integration, and compliance architecture. We help our clients implement LTPT capabilities efficiently, mapping regulatory requirements to functional processes, strengthening data integrity, and preparing for the next phase of IRS guidance in 2026 and beyond.
As a leading business and technology consulting firm specializing in financial services, we partner with recordkeepers, plan sponsors, and service providers to translate complex rules into scalable processes, combining technical insight with decades of operational experience.
Explore our case studies highlighting real world experience at enterpriseiron.com/case-studies. Learn how our expertise can help strengthen your organization. Get in touch with us at sales@enterpriseiron.com or connect with us on LinkedIn to start the conversation.