SECURE 2.0 cut long-term part-time eligibility from three years to two. The policy is easy. Plans get caught on the hours counting, the payroll coordination, and the vesting dates.
A part-timer at one of your plans crossed 500 hours in 2023 and again in 2024. As of January 1, 2025, she can defer into the 401(k), and there is a good chance nothing in the plan document or the recordkeeper's standard setup flagged it. The hours accumulated, the clock ran out, and now there is an eligible employee who was never on anyone's list.
That is the problem with the long-term part-time rules. They run in the background, year over year, and the obligation lands without warning.
Under the original SECURE Act, a 401(k) plan had to let an employee make elective deferrals after three consecutive 12-month periods with at least 500 hours of service, once that person reached age 21. That took effect for the 2024 plan year, and because service before 2021 did not count, the first counting years were 2021, 2022, and 2023.
SECURE 2.0 then moved the line. Section 125 cut the requirement from three consecutive years to two, effective for plan years beginning after December 31, 2024. For calendar-year plans the two-year rule has applied since January 1, 2025.
The part that trips people up is which years you count. The window opens January 1, 2023. An employee who worked at least 500 hours in both 2023 and 2024, and is at least 21, has to be allowed to defer starting in 2025. People reach for the old 2021 start out of habit and get the first cohort wrong. Anyone who works 1,000 hours or more in a year still enters as a regular participant under the plan's normal terms. The LTPT rule is the side door for people who never hit that bar.
Most sponsors can live with the policy. Letting a long-hours part-timer defer is not what keeps anyone up at night. The pain is mechanical. You are now counting hours across multiple years for people the plan was built to keep out, and the data has to be clean and continuous. Miss a year of payroll history and the count is wrong. A few things make this harder than it sounds:
Vesting is its own trap. If a plan makes matching or nonelective contributions for these employees, it credits a year of vesting service for each 12-month period with at least 500 hours, and it counts all qualifying years, including ones before the two that established eligibility. Someone can vest faster than the sponsor expects. The disregard dates are precise. For a 401(k) plan, periods beginning before January 1, 2021 are ignored. For an ERISA 403(b) plan under SECURE 2.0's special vesting rule, the cutoff is January 1, 2023. Use the wrong start line and you misstate vested balances.
SECURE 2.0 pulled 403(b) plans in too, but only the ones covered by Title I of ERISA. A governmental or other non-ERISA 403(b), the kind common in public schools, is not subject to these rules. The first question for a 403(b) sponsor is whether the plan is an ERISA plan. Answer that before you count anyone's hours.
For the ERISA 403(b)s that qualify, the old less-than-20-hours exclusion no longer holds against a long-term part-time employee. Someone who normally works under 20 hours a week has to be allowed to defer once they meet the two-year, 500-hour test, even at those same low hours. The student-employee exclusion survives, because it turns on classification rather than service, so universities and hospitals keep that carve-out.
For employees eligible only because of the LTPT rules, a sponsor generally does not have to contribute and may exclude them from coverage and nondiscrimination testing. That relief does not apply itself: the plan document has to invoke those exclusions, and the testing software has to apply them. The work is reconciliation, and it recurs each January.
The rules are also still moving. The 401(k) final regulations are not finished, and the IRS has said they will apply no earlier than the 2026 plan year, so sponsors are working off the proposed regulations from November 2023 for now. The statute binds regardless.
A short checklist for each plan you advise:
A system of record should hold this for you, so the eligibility date, the hours method, and the counting window live in one place per plan instead of in a payroll export nobody opens until January. Tools like PlanSync do not decide who is eligible or whether a plan is compliant. That judgment is yours. The tool keeps the facts straight so your process runs on your calendar.
This rule gives no warning before it applies. Count the hours before an auditor does it for you.
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