Updated August 24, 2023
SECURE 2.0 requires 403(b) plans subject to ERISA to conform to the LTPT rules (Read a thorough discussion of the LTPT rules). Certain deferral-only 403(b) plans, church plans, and plans sponsored by governmental entities are exempt from this requirement. Employment history before 2023 may be disregarded, so employees working at least 500 hours in 2023 and 2024 will be first eligible to benefit under the new law in 2025.
With universal eligibility rules already applicable for employee salary deferral contributions in 403(b) plans, the LTPT rules will come into play for employers who exclude from participation employees usually working less than 20 hours per week and/or students. Based on the strict reading of the law, those who meet the LTPT employee definition may no longer be excluded from participation; it is not clear whether this was an intended effect.
IRS guidance is needed to clarify the interplay of the universal availability rules, previously allowed exceptions, and the new LTPT requirements. Meanwhile, employers who offer a 403(b) plan incorporating these exclusions would do well by keeping track of the hours worked for all employee classifications and/or considering whether retaining current exclusions will continue to prove beneficial.
Let Pinnacle Plan Design Help
Consultants at Pinnacle Plan Design are actively monitoring new guidance concerning SECURE 2.0. This represents our understanding of the laws at this time. Additional guidance will provide additional clarity. If you have any questions about the application of the LTPT rules in your retirement plan, don’t hesitate to contact us at (520) 618-1305.