Part-Time Employees in 401(k) Plans

Part Time Employees in 401(k) PlansView This Newsletter: Part-Time Employees in 401(k) Plans

Update: 2019’s SECURE Act created a new ‘long term part time’ (LTPT) employee group for 401(k) plans.  Employers are required to allow LTPT employees to make 401(k) salary deferrals beginning in 2024.  Generally, an employee is LTPT if they are 21 and have been credited with 501-999 hours in 3 consecutive years; years prior to 2021 are ignored in this determination.  LTPT employees can be excluded from receiving employer contributions, and may be ignored for nondiscrimination testing and top-heavy requirements.


401(k) plans cannot simply exclude all part-time employees. This newsletter explains when part-time employees must be covered by the company’s 401(k) plan.

  • Minimum Age and Service Requirements
    • 1,000 hours of service and attainment of age 21
  • Entry Date
    • Semi-annual entry is the maximum permissible
    • Example
  • Effect of a Short Service Requirement
    • The downside of including part-time employees in 401(k) plans
  • Excluding Classes of Employees
    • May exclude employees if based on objective business criteria
  • Excluding Part-Time Employees with a Fail Safe Provision
    • Allows full-time employees immediate entry, while minimizing part-time employee eligibility
  • Service Requirements for Employer Contributions
    • The plan may require a minimum number of hours of service during the plan year and/or employment on the last day of the plan year to receive an allocation of the employer contribution.
    • Example
  • Impact on ADP and ACP Tests
    • Improperly excluding part-time employees who have satisfied the eligibility requirements will cause these tests to be performed incorrectly
  • Making Excluded Participants Whole
    • Qualified plans that have improperly excluded part-time employees from participation are required to make these individuals whole.
  • Conclusion
    • Never assume that part-time employees are not eligible to participate in the 401(k) plan
Pinnacle Plan Design is a third-party administrator (TPA) for employer-sponsored qualified retirement plans. We specialize in retirement plan design, administration and actuarial consulting for 401(k)/profit-sharing plans, defined benefit plans, cash balance plans, and 403(b) plans. Pinnacle Plan Design proudly serves businesses nationwide.
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