Par. 2. Section 1.401(k)-5 is revised to read as follows:
(a) Overview —(1) Rules applicable to long-term, part-time employees —(i) In general. This section provides rules regarding long-term, part-time employees, as defined in paragraph (b)(1) of this section. A cash or deferred arrangement satisfies the requirements of section 401(k)(2)(D) of the Internal Revenue Code only if, with respect to each long-term, part-time employee—
(A) The employee becomes eligible to make a cash or deferred election under the arrangement in accordance with the participation requirements of paragraph (c) of this section; and
(B) The plan that includes the arrangement satisfies the vesting requirements of paragraph (d) of this section.
(ii) Optional provisions. A plan that includes a cash or deferred arrangement that satisfies the requirements of paragraphs (c) and (d) of this section may reflect the nonelective and matching contribution provisions of paragraph (e) of this section with respect to long-term, part-time employees (but not former long-term, part-time employees as defined in paragraph (d)(2)(i) of this section). In addition, an employer maintaining the plan may apply the employer election provisions of paragraph (f) of this section with respect to long-term, part-time employees (but not former long-term, part-time employees).
(2) Rules applicable to former long-term, part-time employees. See paragraph (d)(2) of this section for rules relating to former long-term, part-time employees.
(b) Long-term, part-time employees —(1) Definition —(i) In general. Except as provided in paragraph (b)(1)(ii) or (iii) of this section, long-term, part-time employee means an employee who is eligible to participate in the arrangement solely by reason of having—
(A) Completed two consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service (as defined in section 410(a)(3)(C)); and
(B) Attained the age specified in section 410(a)(1)(A)(i) by the close of the last of the 12-month periods described in paragraph (b)(1)(i)(A) of this section.
(ii) Exclusion for certain employees. Long-term, part-time employees do not include—
(A) Employees who are included in a unit of employees covered by an agreement that the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers if there is evidence that retirement benefits were the subject of good faith bargaining between those employee representatives and that employer or employers;
(B) Employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer that constitutes income from sources within the United States (within the meaning of section 861(a)(3)); or
(C) Any other employees described in section 410(b)(3).
(iii) Plan years beginning in 2024. With respect to a plan year beginning in 2024, paragraph (b)(1)(i)(A) of this section is applied by substituting three consecutive 12-month periods for two consecutive 12-month periods.
(2) Examples. The following examples illustrate the application of the definition of long-term, part-time employee under paragraph (b)(1) of this section, taking into account the determination of 12-month periods under paragraph (c)(2)(i) of this section. For purposes of the examples, each plan is maintained on a calendar-year basis, includes a cash or deferred arrangement, and each plan's provisions are effective as of January 1, 2024. For purposes of paragraphs (b)(2)(vi) through (xii) of this section ( Examples 6 through 12 ), each plan provides that, in order to be eligible to make a cash or deferred election under the arrangement, an employee is required to complete a period of service with the employer maintaining the plan that extends until the close of the earlier of: a 12-month period during which the employee is credited with at least 1,000 hours of service, or three consecutive 12-month periods (excluding any 12-month period beginning before January 1, 2021) during each of which the employee is credited with at least 500 hours of service (however, effective January 1, 2025, each plan is amended to provide that the applicable number of consecutive 12-month periods during each of which an employee must be credited with at least 500 hours of service in order to participate in the arrangement is reduced from three to two). In addition, for purposes of paragraphs (b)(2)(vi) through (xii) of this section ( Examples 6 through 12 ), each plan provides that, for purposes of determining whether an employee has satisfied the requirements of paragraph (b)(1)(i) of this section, 12-month periods are determined by reference to the employment commencement date of an employee, and each plan provides monthly entry dates for an eligible employee to commence participation in the arrangement. Except as provided in paragraphs (b)(2)(viii), (ix), and (x) of this section ( Examples 8, 9, and 10 ), each employee has attained age 21. Except as provided in paragraphs (b)(2)(xi) and (xii) of this section ( Examples 11 and 12 ), none of the employees are described in section 410(b)(3).
(i) Example 1. (A) Employer A maintains Plan I. Plan I includes a cash or deferred arrangement under which each employee of Employer A is eligible to make a cash or deferred election as soon as administratively practicable after the employee's employment commencement date.
(B) None of the employees who are eligible to make a cash or deferred election under the arrangement in Plan I are long-term, part-time employees because none of those employees are eligible to participate in the arrangement solely by reason of having completed the number of consecutive 12-month periods that applies under paragraph (b)(1)(i)(A) or (b)(1)(iii) of this section (referred to as the applicable number of consecutive 12-month periods) during each of which the employee is credited with at least 500 hours of service.
(ii) Example 2. (A) Employer B maintains Plan J. Plan J provides that, in order to be eligible to make a cash or deferred election under the arrangement, each employee of Employer B is required to complete a 12-month period of service with Employer B during which the employee is credited with at least 500 hours of service.
(B) None of the employees who are eligible to make a cash or deferred election under the arrangement in Plan J are long-term, part-time employees because none of those employees are eligible to participate in the arrangement solely by reason of having completed the applicable number of consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service.
(iii) Example 3. (A) Employer C maintains Plan K. Plan K provides that, in order to be eligible to make a cash or deferred election under the arrangement, each employee of Employer C is required to complete a period of service with Employer C that extends until the close of the earlier of: a 12-month period during which the employee is credited with at least 1,000 hours of service, or two consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service.
(B) For the plan year beginning January 1, 2024, none of the employees who are eligible to make a cash or deferred election under the arrangement in Plan K are long-term, part-time employees because none of those employees are eligible to participate in the arrangement solely by reason of having completed three consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service.
(C) For plan years beginning on or after January 1, 2025, an employee who becomes eligible to participate in the arrangement in Plan K solely by reason of having completed two consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service would be a long-term, part-time employee. However, an employee who became eligible to participate in the arrangement before January 1, 2025, would not be a long-term, part-time employee for plan years beginning on or after January 1, 2025, because that employee did not become eligible to participate in the arrangement solely by reason of completing the applicable number of consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service.
(iv) Example 4. (A) Employer D maintains Plan L. Plan L provides that, in order to be eligible to make a cash or deferred election under the arrangement, each employee of Employer D is required to complete a 1-year period of service with Employer D using the elapsed time method of crediting service.
(B) None of the employees who are eligible to make a cash or deferred election under the arrangement in Plan L are long-term, part-time employees because none of those employees are eligible to participate in the arrangement solely by reason of having completed the applicable number of consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service.
(v) Example 5. (A) The facts are the same as in paragraph (b)(2)(iv)(A) of this section ( Example 4 ), except that Plan L requires employees of Employer D who are classified as part-time employees to complete the applicable number of consecutive 1-year periods of service under paragraph (b)(1)(i)(A) or (b)(1)(iii) of this section with Employer D using the elapsed time method of crediting service.
(B) Plan L fails to satisfy the requirements of section 401(k)(2)(D)(i) because, under the elapsed time method of crediting service, a 1-year period of service is the maximum period that Plan L may require any employee to complete in order to participate in the arrangement.
(vi) Example 6. (A) Employer E maintains Plan M. For purposes of determining the eligibility of an employee to participate in the arrangement under Plan M, Plan M credits an employee with 190 hours of service for each month for which the employee would be required to be credited with at least 1 hour of service. Employees R and S are employees of Employer E who both have an employment commencement date of June 1, 2024. Employees R and S are both classified by Employer E as part-time employees. During the 12-month period beginning on June 1, 2024, Employee R has at least 1 hour of service each month for 6 months and, therefore, is credited with 1,140 hours of service. Employee R commences participation in the arrangement in Plan M on June 1, 2025. During each of the 12-month periods beginning on June 1, 2024, and June 1, 2025, Employee S is credited with at least 1 hour of service each month for 4 months and, therefore, is credited with 760 hours of service for the period. Employee S commences participation in the arrangement in Plan M on June 1, 2026.
(B) Employee R is not a long-term, part-time employee (or former long-term, part-time employee, as defined in paragraph (d)(2)(i) of this section) because Employee R is credited with 1,140 hours of service during the 12-month period beginning on June 1, 2024. Therefore, Employee R is not eligible to participate in the arrangement solely by reason of having completed the applicable number of consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service. However, Employee S is eligible to participate in the arrangement solely by reason of having completed the applicable number of consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service. Accordingly, Employee S is a long-term, part-time employee.
(vii) Example 7. (A) Employer G maintains Plan O. Employee U is an employee of Employer G with an employment commencement date of June 1, 2024. Employee U is classified by Employer G as a part-time employee. During the 12-month period beginning on June 1, 2024, Employee U is credited with 900 hours of service. During the 12-month period beginning on June 1, 2025, Employee U is credited with 1,100 hours of service. Employee U commences participation in the arrangement in Plan O on June 1, 2026. During the 12-month period beginning on June 1, 2026, Employee U is credited with 900 hours of service.
(B) Employee U is not a long-term, part-time employee (or former long-term, part-time employee) because Employee U is credited with 1,100 hours of service during the 12-month period beginning on June 1, 2025. Therefore, Employee U is not eligible to participate in the arrangement solely by reason of having completed the applicable number of consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service. The result would be the same even if Employee U also is credited with at least 500 (but less than 1,000) hours of service during the plan year beginning on June 1, 2027 (and therefore completes two consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service).
(viii) Example 8. (A) Employer H maintains Plan P. Plan P excludes any employees who have not yet attained age 21 from participating in the arrangement under Plan P. Employee V is an employee of Employer H with an employment commencement date of June 1, 2024, who attains age 18 on September 2, 2024. During the 12-month period beginning on June 1, 2024, Employee V is credited with 1,100 hours of service. During each of the 12-month periods beginning on June 1, 2025, and June 1, 2026, Employee V is credited with 600 hours of service. On September 2, 2027, Employee V attains age 21 and Employee V commences participation in the arrangement in Plan P on October 1, 2027.
(B) Employee V is not a long-term, part-time employee (or former long-term, part-time employee) because Employee V was credited with 1,100 hours of service during the 12-month period beginning on June 1, 2024, and, therefore, became eligible to participate in the arrangement by reason of completing a 12-month period with at least 1,000 hours of service and attaining age 21. Accordingly, Employee V did not become eligible to participate in the arrangement solely by reason of having completed the applicable number of consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service.
(ix) Example 9. (A) Employer I maintains Plan Q. Plan Q excludes any employees who have not yet attained age 21 from participating in the arrangement under Plan Q. Employee W is an employee of Employer I with an employment commencement date of June 1, 2024, who attains age 19 on October 3, 2024. During each of the 12-month periods beginning on June 1, 2024, and June 1, 2025, Employee W is credited with 600 hours of service for the period. During the 12-month period beginning on June 1, 2026, Employee W attains age 21 (on October 3, 2026), but is credited with only 400 hours of service.
(B) Employee W is not a long-term, part-time employee (or former long-term, part-time employee) because Employee W is credited with only 400 hours of service during the 12-month period in which Employee W attains age 21. Therefore, Employee W did not attain age 21 by the close of the last of the 12-month periods described in paragraph (b)(1)(i)(A) of this section. However, Employee W could become eligible to participate in the arrangement in Plan Q as a long-term, part-time employee as of June 1, 2029, if Employee W is credited with at least 500 (but less than 1,000) hours of service for each 12-month period beginning on June 1, 2027, and June 1, 2028.
(x) Example 10. (A) The facts are the same as in paragraph (b)(2)(ix)(A) of this section ( Example 9 ), except that, during the 12-month period beginning on June 1, 2026, Employee W is credited with 600 hours of service, and Employee W commences participation in the arrangement in Plan Q on June 1, 2027.
(B) Employee W is credited with 600 hours of service for each 12-month period beginning on June 1, 2025, and June 1, 2026, and attains age 21 on October 3, 2026, which is by the close of the last of those 12-month periods. Accordingly, Employee W is a long-term, part-time employee.
(xi) Example 11. (A) Employer J maintains Plan R. Plan R excludes any employees who are included in a unit of employees covered by a collective bargaining agreement described in paragraph (b)(1)(ii)(A) of this section from participating in the arrangement under Plan R. Employee X is an employee of Employer J who is included in a unit of employees covered by a collective bargaining agreement described in paragraph (b)(1)(ii)(A) of this section, and who has an employment commencement date of June 1, 2024. During each of the 12-month periods beginning on June 1, 2024, and June 1, 2025, Employee X is credited with 600 hours of service for the period. During the 12-month period beginning on June 1, 2026, Employee X is credited with 1,100 hours of service. On June 2, 2027, Employee X ceases to be included in a unit of employees covered by a collective bargaining agreement described in paragraph (b)(1)(ii)(A) of this section and becomes eligible to participate in the arrangement.
(B) Employee X is not a long-term, part-time employee (or former long-term, part-time employee) because Employee X is credited with 1,100 hours of service during the 12-month period beginning on June 1, 2026. Therefore, Employee X is not eligible to participate in the arrangement solely by reason of having completed the applicable number of consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service.
(xii) Example 12. (A) The facts are the same as in paragraph (b)(2)(xi)(A) of this section ( Example 11 ), except that, during the 12-month period beginning on June 1, 2026, Employee X is credited with only 600 hours of service.
(B) Employee X is eligible to participate in the arrangement solely by reason of having completed the applicable number of consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service. Accordingly, Employee X is a long-term, part-time employee.
(c) Participation —(1) Time of participation —(i) In general. Subject to the rules of this paragraph (c)(1) and paragraph (c)(4) of this section, a long-term, part-time employee who satisfies the plan's eligibility conditions (as described in paragraph (c)(3) of this section) must become eligible to make a cash or deferred election under the arrangement no later than the earlier of—
(A) The first day of the first plan year beginning after the date on which the long-term, part-time employee satisfied the requirements of paragraphs (b)(1)(i)(A) and (B) of this section; or
(B) The date 6 months after the date on which the long-term, part-time employee satisfied the requirements of paragraphs (b)(1)(i)(A) and (B) of this section.
(ii) Employees who separate from service. The requirements of paragraph (c)(1)(i) of this section do not apply to a long-term, part-time employee who separates from service and does not return to service with the employer or employers maintaining the plan before the date referred to in paragraph (c)(1)(i) of this section. However, if a long-term, part-time employee described in the prior sentence returns to service with the employer or employers maintaining the plan after the date referred to in paragraph (c)(1)(i) of this section and is otherwise eligible to participate in the arrangement, the long-term, part-time employee must be eligible to make a cash or deferred election immediately upon return to service with the employer or employers maintaining the plan.
(iii) Change in status. If an employee who would otherwise be eligible to participate in the arrangement as a long-term, part-time employee does not participate solely because the employee does not satisfy the plan's eligibility conditions (as described in paragraph (c)(3) of this section) as of the date referred to in paragraph (c)(1)(i) of this section, and the employee satisfies those conditions after that date, the employee must become eligible to participate in the arrangement immediately upon satisfying those conditions.
(2) Determination of 12-month periods —(i) In general. Except for any 12-month period beginning before January 1, 2021, all 12-month periods during which an employee is credited with at least 500 hours of service with the employer or employers maintaining the plan must be taken into account for purposes of determining whether an employee has satisfied the requirements of paragraphs (b)(1)(i)(A) and (B) of this section.
(ii) Initial and subsequent 12-month periods. (A) The initial 12-month period with respect to an employee begins on the first day for which the employee is entitled to be credited with an hour of service.
(B) Beginning with the plan year that commences within the initial 12-month period described in paragraph (c)(2)(ii)(A) of this section, 12-month periods may be determined by reference to the first day of the plan year. If the preceding sentence applies, that initial 12-month period and the plan year that commences within the initial 12-month period are treated as consecutive 12-month periods.
(iii) Examples. The following examples illustrate the determination of 12-month periods under this paragraph (c)(2). For purposes of the examples, each plan includes a cash or deferred arrangement, is maintained on a calendar-year basis, and provides monthly entry dates for an eligible employee to commence participation in the arrangement. Each employee in the following examples has attained age 21, and none of the employees are described in section 410(b)(3). For purposes of paragraphs (c)(2)(iii)(A), (B), and (G) of this section ( Examples 1, 2, and 7 ), each plan provides that, for purposes of determining whether an employee has satisfied the requirements of paragraphs (b)(1)(i)(A) and (B) of this section, 12-month periods are determined by reference to the employment commencement date of an employee. For purposes of paragraphs (c)(2)(iii)(C) through (F) of this section ( Examples 3 through 6 ), each plan provides that, for purposes of determining whether an employee has satisfied the requirements of paragraphs (b)(1)(i)(A) and (B) of this section, any 12-month period that begins after the first day of the initial 12-month period is determined by reference to the first day of the plan year. For purposes of paragraph (c)(2)(iii)(A) of this section and paragraphs (c)(2)(iii)(C) through (G) of this section ( Example 1 and Examples 3 through 7 ), each plan provides that, effective January 1, 2024, in order to be eligible to make a cash or deferred election under the arrangement, each employee is required to complete a period of service with the employer maintaining the plan that extends until the close of the earlier of: a 12-month period during which the employee is credited with at least 1,000 hours of service, or three consecutive 12-month periods (excluding any 12-month period beginning before January 1, 2021) during each of which the employee is credited with at least 500 hours of service. However, effective January 1, 2025, each plan is amended to provide that the applicable number of consecutive 12-month periods during each of which an employee must be credited with at least 500 hours of service in order to participate in the arrangement is reduced from three to two.
(A) Example 1. ( 1 ) Employer K maintains Plan S. Pursuant to paragraph (c)(2)(i) of this section, Plan S provides that any 12-month period beginning before January 1, 2021, is not taken into account for purposes of determining whether an employee has completed three consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service. Employee Y is an employee of Employer K with an employment commencement date of June 1, 2021. During each of the 12-month periods beginning on June 1, 2021, June 1, 2022, and June 1, 2023, Employee Y is credited with 600 hours of service for the period. Employee Y commences participation in the arrangement in Plan S on June 1, 2024.
( 2 ) Employee Y is eligible to participate in the arrangement solely by reason of having completed three consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service, and Employee Y is a long-term, part-time employee. If Employee Y had an employment commencement date of June 1, 2020, and had been credited with 600 hours of service for the 12-month period beginning on June 1, 2020, then the result would be the same because, under the terms of the plan, the 12-month period beginning on June 1, 2020, would not be taken into account for purposes of determining whether Employee Y has completed three consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service and, therefore, Employee Y would become eligible to participate in the arrangement on June 1, 2024, as a long-term, part-time employee.
(B) Example 2. ( 1 ) Employer L maintains Plan T. Plan T provides that, in order to be eligible to make a cash or deferred election under the arrangement, each employee is required to complete a period of service with Employer L that extends until the close of the earlier of: a 12-month period during which the employee is credited with at least 1,000 hours of service; or the number of consecutive 12-month periods that applies under paragraph (b)(1)(i)(A) or (b)(1)(iii) of this section (referred to as the applicable number of consecutive 12-month periods), including 12-month periods beginning before January 1, 2021. Employee Z is an employee of Employer L with an employment commencement date of June 1, 2020. During each of the 12-month periods beginning on June 1, 2020, June 1, 2021, and June 1, 2022, Employee Z is credited with 600 hours of service for the period. Employee Z commences participation in the arrangement in Plan T on June 1, 2023.
( 2 ) Plan T does not fail to satisfy the requirements of section 401(k)(2)(D) merely because, under the terms of Plan T, Employee Z commences participation in the arrangement on June 1, 2023. However, paragraph (c)(2)(i) of this section does not permit any 12-month period beginning before January 1, 2021 (including the 12-month period beginning on June 1, 2020), to be taken into account for purposes of determining whether an employee has completed the applicable number of consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service. Accordingly, Employee Z is not a long-term, part-time employee because Employee Z is not eligible to participate in the arrangement solely by reason of having completed the applicable number of consecutive 12-month periods (beginning on or after January 1, 2021) during each of which the employee is credited with at least 500 hours of service.
(C) Example 3. ( 1 ) Employer M maintains Plan U. Employee A is an employee of Employer M with an employment commencement date of March 1, 2023. During the 12-month period beginning on March 1, 2023, Employee A is credited with 400 hours of service. During each of the 12-month periods beginning on January 1, 2024, and January 1, 2025, Employee A is credited with 600 hours of service for the period. Employee A commences participation in the arrangement under Plan U on January 1, 2026.
( 2 ) Plan U satisfies the requirements of paragraph (c)(2)(ii)(B) of this section with respect to Employee A. The fact that the 12-month period beginning March 1, 2023, is not a 12-month period for which Employee A is credited with at least 500 hours of service, does not prevent Employee A from being a long-term, part-time employee. Accordingly, Employee A is eligible to participate in the arrangement on January 1, 2026, solely by reason of having completed two consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service (that is, the 12-month periods beginning on January 1, 2024, and January 1, 2025), and Employee A is a long-term, part-time employee.
(D) Example 4. ( 1 ) Employer N maintains Plan V. Employee B is an employee of Employer N with an employment commencement date of December 1, 2023. During the 12-month period beginning on December 1, 2023, Employee B is credited with 600 hours of service. During the 12-month period beginning on January 1, 2024, Employee B is credited with 600 hours of service. Employee B commences participation in the arrangement under Plan V on January 1, 2025.
( 2 ) Plan V satisfies the requirements of paragraph (c)(2)(ii)(B) of this section with respect to Employee B because the 12-month periods beginning on December 1, 2023, and January 1, 2024, are considered two consecutive 12-month periods. Accordingly, Employee B is eligible to participate in the arrangement on January 1, 2025, solely by reason of having completed two consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service, and Employee B is a long-term, part-time employee.
(E) Example 5. ( 1 ) Employer O maintains Plan W. Employee C is an employee of Employer O with an employment commencement date of August 1, 2020. During the 12-month period beginning on August 1, 2020, Employee C is credited with 600 hours of service. During each of the 12-month periods beginning on January 1, 2021, January 1, 2022, and January 1, 2023, Employee C is credited with 600 hours of service for the period. Employee C commences participation in the arrangement in Plan W on January 1, 2024.
( 2 ) Plan W satisfies the requirements of paragraph (c)(2)(ii)(B) of this section with respect to Employee C. Pursuant to paragraph (c)(2)(i) of this section, Plan W does not take into account the 12-month beginning on August 1, 2020, for purposes of determining whether Employee C has completed three consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service. Accordingly, Employee C is eligible to participate in the arrangement on January 1, 2024, solely by reason of having completed three consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service (that is, the 12-month periods beginning on January 1, 2021, January 1, 2022, and January 1, 2023), and Employee C is a long-term, part-time employee.
(F) Example 6. ( 1 ) Employer P maintains Plan X. Employee D is an employee of Employer P with an employment commencement date of March 1, 2023. During the 12-month period beginning on March 1, 2023, Employee D is credited with 600 hours of service. During the 12-month period beginning on January 1, 2024, Employee D is credited with 400 hours of service. During each of the 12-month periods beginning on January 1, 2025, and January 1, 2026, Employee D is credited with 600 hours of service for the period. Employee D commences participation in the arrangement under Plan X on January 1, 2027.
( 2 ) Plan X satisfies the requirements of paragraph (c)(2)(ii)(B) of this section with respect to Employee D. The 12-month period beginning on March 1, 2023 (for which Employee D is credited with 600 hours of service) is not taken into account for purposes of determining whether Employee D has completed the applicable number of consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service because Employee D is not credited with at least 500 hours of service during the 12-month period beginning on January 1, 2024. Accordingly, Employee D is eligible to participate in the arrangement on January 1, 2027, solely by reason of having completed two consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service (that is, the 12-month periods beginning on January 1, 2025, and January 1, 2026), and Employee D is a long-term, part-time employee.
(G) Example 7. ( 1 ) Employer Q maintains Plan Y. Employee E is an employee of Employer Q with an employment commencement date of June 1, 2023. During each of the 12-month periods beginning on June 1, 2023, and June 1, 2024, Employee E is credited with 600 hours of service for the period. Employee E commences participation in the arrangement in Plan Y on June 1, 2025. During the 12-month period beginning on June 1, 2025, Employee E is credited with 300 hours of service.
( 2 ) Pursuant to paragraph (c)(2)(i) of this section, the 12-month periods beginning on June 1, 2023, and June 1, 2024, must be taken into account for purposes of determining whether Employee E is a long-term, part-time employee. This requirement is not changed merely because Employee E is not credited with at least 500 hours of service during the 12-month period beginning on June 1, 2025. Accordingly, Employee E does not cease to be a long-term, part-time employee merely because Employee E completes a 12-month period during which Employee E is credited with less than 500 hours of service.
(3) Eligibility conditions not based on age or service —(i) In general. Subject to paragraph (c)(3)(ii) of this section, the rules of this section do not preclude a plan from establishing an eligibility condition that must be satisfied in order for an employee to participate in the arrangement (for example, requiring as a condition of participation that an employee be employed within a specified job classification), provided that the condition is not a proxy for imposing an age or service requirement that requires an employee to complete a period of service with the employer or employers maintaining the plan that extends beyond the close of the earlier of the periods described in section 401(k)(2)(D)(i) and (ii).
(ii) Eligibility conditions that are proxies for age or service. For purposes of applying the rules of this section, a plan provision will be treated as a proxy for imposing an age or service requirement if the provision has the effect of imposing an age or service requirement with the employer or employers maintaining the plan.
(iii) Examples. The following examples illustrate the rules of this paragraph (c)(3). For purposes of the examples, each plan includes a cash or deferred arrangement and is maintained on a calendar-year basis.
(A) Example 1. ( 1 ) Employer R maintains Plans Z and A. Effective January 1, 2024, Plan Z provides that, as a condition to participate in the arrangement, an employee must complete the number of consecutive 12-month periods that applies under paragraph (b)(1)(i)(A) or (b)(1)(iii) of this section (referred to as the applicable number of consecutive 12-month periods) during each of which the employee is credited with at least 500 hours of service. Effective January 1, 2024, Plan A provides that, as a condition to participate in the arrangement, an employee must complete a 12-month period during which the employee is credited with at least 1,000 hours of service.
( 2 ) Because the provision of Plan Z that requires an employee to complete the applicable number of consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service in order to participate in the arrangement requires an employee to complete the period of service described in section 401(k)(2)(D)(ii), that provision requires an employee to complete a period of service with Employer R that extends beyond the close of the earlier of the period described in section 401(k)(2)(D)(i), or the period described in section 401(k)(2)(D)(ii). Accordingly, as of January 1, 2024, the arrangement under Plan Z fails to satisfy the requirements of section 401(k)(2)(D). Similarly, because Plan A requires an employee to complete a 12-month period during which the employee is credited with at least 1,000 hours of service in order to participate in the arrangement, as of January 1, 2024, the arrangement under Plan A fails to satisfy the requirements of section 401(k)(2)(D).
(B) Example 2. ( 1 ) Employer S maintains Plan B. Employer S is comprised of Divisions T and U. In order to be employed in Division T, an employee is required to be classified as a full-time employee, which Employer S defines as an employee who completes a 12-month period during which the employee is credited with at least 1,000 hours of service. All other employees of Employer S are employed in Division U. Effective January 1, 2024, Plan B provides that, as a condition to participate in the arrangement, an employee is required to be employed in Division T.
( 2 ) Because the provision of Plan B that requires an employee to be employed in Division T in order to participate in the arrangement has the effect of requiring an employee to complete the period of service described in section 401(k)(2)(D)(i), that provision is treated as a service requirement under paragraph (c)(3)(ii) of this section. Accordingly, as of January 1, 2024, the arrangement under Plan B fails to satisfy the requirements of section 401(k)(2)(D) because the arrangement requires an employee to complete a period of service with Employer S that extends beyond the close of the earlier of: the period described in section 401(k)(2)(D)(i), or the period described in section 401(k)(2)(D)(ii).
(C) Example 3. ( 1 ) Employer V maintains Plan C. Prior to January 1, 2024, Plan C provided that an employee classified by Employer V as a part-time employee was ineligible to make a cash or deferred election under the arrangement unless the part-time employee completed a 12-month period during which the employee was credited with at least 1,000 hours of service with Employer V. Effective January 1, 2024, Plan C provides that an employee classified by Employer V as a part-time employee is ineligible to make a cash or deferred election under the arrangement unless the employee completes a period of service with Employer V that extends until the close of the earlier of: a 12-month period during which the employee is credited with at least 1,000 hours of service, or the applicable number of consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service (excluding any 12-month period beginning before January 1, 2021).
( 2 ) Plan C does not fail to satisfy the requirements of section 401(k)(2)(D) merely because, effective January 1, 2024, Plan C provides that an employee classified as a part-time employee is ineligible to make a cash or deferred election under the arrangement unless the employee completes a period of service with Employer V that extends until the close of the earlier of: a 12-month period during which the employee is credited with at least 1,000 hours of service, or the applicable number of consecutive 12-month periods during each of which the employee is credited with at least 500 hours of service (excluding any 12-month period beginning before January 1, 2021).
(4) Elective contributions. A cash or deferred arrangement satisfies the requirements of this paragraph (c)(4) only if the right to make elective contributions by a long-term, part-time employee who is an eligible NHCE is not restricted in a manner that would not be permitted for an NHCE under § 1.401(k)-3(c)(6). However, a SIMPLE 401(k) plan may limit the amount of elective contributions made by long-term, part-time employees under the plan to the extent needed to satisfy the elective contribution limitation for SIMPLE 401(k) plans under section 401(k)(11)(B)(i)(I) and (m)(10)(A).
(d) Vesting —(1) Years of vesting service taken into account —(i) General rule. For purposes of determining the nonforfeitable right of a long-term, part-time employee (or former long-term, part-time employee) to employer contributions under the plan (other than elective contributions)—
(A) Each 12-month period (which may be any 12-consecutive month period that is not prohibited for use under section 411(a)) during which the employee is credited with at least 500 hours of service (as defined in section 410(a)(3)(C)) with the employer or employers maintaining the plan is treated as a year of vesting service; and
(B) Except for any 12-month period beginning before January 1, 2021, all 12-month periods of service with the employer or employers maintaining the plan must be taken into account unless the period of service of the employee may be disregarded under section 411(a).
(ii) Application of vesting rules. For purposes of this paragraph (d), section 411 will be treated as if it applies to the plan, taking into account the modifications provided in paragraphs (d)(1)(i) and (iii) of this section.
(iii) Break in service. For purposes of determining whether a long-term, part-time employee (or former long-term, part-time employee) has incurred a 1-year break in service, section 411(a)(6)(A) is applied by substituting at least 500 hours of service for more than 500 hours of service.
(2) Former long-term, part-time employees —(i) Definition. A former long-term, part-time employee means an employee who—
(A) Became eligible to participate in the arrangement as a long-term, part-time employee;
(B) Subsequently ceased to be a long-term, part-time employee because the employee was described in paragraph (d)(2)(ii)(A) or (B) of this section; and
(C) Has not returned to long-term, part-time employee status in accordance with paragraph (d)(2)(iii) of this section.
(ii) Timing. A long-term, part-time employee becomes a former long-term, part-time employee as of the first day of the first plan year beginning after the earlier of the plan year in which the employee:
(A) Satisfies the requirements of section 401(k)(2)(D) without regard to section 401(k)(2)(D)(ii); or
(B) Ceases to satisfy the plan's eligibility conditions (other than age or service conditions).
(iii) Return to long-term, part-time employee status. If a long-term, part-time employee who ceases to satisfy the plan's eligibility conditions (other than age or service conditions) during a plan year subsequently satisfies those conditions, then the employee will return to long-term, part-time employee status as of the first day of the plan year during which the employee again satisfies those conditions. However, the preceding sentence does not apply if the employee is a former long-term, part-time employee because the employee satisfies the requirements of section 401(k)(2)(D) without regard to section 401(k)(2)(D)(ii).
(3) Examples. The following examples illustrate the vesting requirements of this paragraph (d). For purposes of the examples, each plan includes a cash or deferred arrangement; is maintained on a calendar-year basis; provides that, for purposes of determining whether an employee has satisfied the requirements of paragraph (b)(1)(i) of this section and for purposes of determining the nonforfeitable right of a long-term, part-time employee (or former long-term, part-time employee) to employer contributions under the plan (other than elective contributions), all 12-month periods are determined by reference to the employment commencement date of an employee; and provides that, for purposes of determining the nonforfeitable right of an employee to any nonelective contribution made on behalf of the employee, the plan uses a 6-year graded vesting schedule.
(i) Example 1. (A) Employer X maintains Plan G. Employees of Employer X are employed at either Plant Y or Plant Z. Plan G requires that an employee be employed at Plant Y as a condition to participate in the arrangement. This condition is not a proxy for age or service under paragraph (c)(3)(ii) of this section. Employee N is an employee of Employer X who is employed at Plant Z, and who has an employment commencement date of June 1, 2021. During the 12-month periods beginning on June 1, 2021, June 1, 2022, June 1, 2023, June 1, 2024, June 1, 2025, and June 1, 2026, Employee N is credited with 600 hours of service for each period. On June 2, 2027, Employee N is transferred to Plant Y, becomes eligible to participate in the arrangement in Plan G, and thereafter commences participation in the arrangement as a long-term, part-time employee.
(B) Unless Plan G is permitted to disregard years of vesting service for Employee N under section 411(a), paragraph (d)(1)(i) of this section requires Plan G to credit Employee N with 6 years of vesting service for the 12-month periods beginning on June 1, 2021, June 1, 2022, June 1, 2023, June 1, 2024, June 1, 2025, and June 1, 2026, because Employee N is credited with at least 500 hours of service during each of those periods. Accordingly, Employee N has a 100-percent nonforfeitable right to any nonelective contribution under Plan G that is made on behalf of Employee N.
(ii) Example 2. (A) Employer A maintains Plan H. Employee O commences participation in the arrangement in Plan H as a long-term, part-time employee on June 1, 2024. During the 12-month period beginning on June 1, 2024, Employee O is credited with 1,200 hours of service. During each of the 12-month periods beginning on June 1, 2025, and June 1, 2026, Employee O is credited with 600 hours of service for the period.
(B) Based on these facts, Employee O remains a long-term, part-time employee for the plan year beginning January 1, 2025. Pursuant to paragraph (d)(2)(ii) of this section, Employee O becomes a former long-term, part-time employee beginning with the next plan year. However, this paragraph (d) continues to apply to Employee O (although paragraphs (e) and (f) of this section no longer apply to Employee O beginning with the 2026 plan year). Employee O will not cease to be a former long-term, part-time employee merely because Employee O completes one or more 12-month periods during each of which the employee is credited with at least 500 (but less than 1,000) hours of service. Thus, Employee O is credited with a year of vesting service for each of the 12-month periods in which Employee O is credited with at least 500 hours of service (including the 12-month periods beginning on June 1, 2025, and June 1, 2026).
(iii) Example 3. (A) Employer B maintains Plan J. Employees of Employer B are employed at either Plant C or Plant D. Plan J requires, as a condition to participate in the arrangement, that an employee be employed at Plant C. This condition is not a proxy for age or service under paragraph (c)(3)(ii) of this section. Employee P is an NHCE who is employed at Plant C, and who has an employment commencement date of June 1, 2021. On June 1, 2024, Employee P commences participation in the arrangement in Plan J as a long-term, part-time employee. During the 12-month periods beginning on June 1, 2024, and June 1, 2025, Employee P continues to be credited with at least 500 (but less than 1,000) hours of service for each period. However, on March 1, 2025, Employee P is transferred to Plant D and becomes ineligible to participate in the arrangement. On March 1, 2026, Employee P is transferred back to Plant C and again becomes eligible to participate in the arrangement. Employee P remains employed at Plant C through the 2026 plan year.
(B) Based on these facts, Employee P remains a long-term, part-time employee for the 2025 plan year (although Employee P may not make a cash or deferred election under the arrangement as of March 1, 2025). Pursuant to paragraph (d)(2)(iii) of this section, Employee P remains a long-term, part-time employee for the 2026 plan year (although Employee P is not eligible to make a cash or deferred election under the arrangement again until March 1, 2026). As a result, Employee P never becomes a former long-term, part-time employee, and this paragraph (d) continues to apply to Employee P.
(e) Nonelective and matching contributions —(1) General rule. Notwithstanding section 401(a)(4), neither nonelective nor matching contributions are required to be made on behalf of long-term, part-time employees, even if those contributions are made on behalf of other eligible employees.
(2) Coordination with employer elections —(i) Safe harbor contributions. A plan that is intended to satisfy the ADP safe harbor provisions of section 401(k)(12) or (13) will not fail to satisfy those provisions merely because the employer does not make a nonelective or matching contribution on behalf of an eligible NHCE who is a long-term, part-time employee (or makes a nonelective or matching contribution that does not satisfy the safe harbor contribution requirements of § 1.401(k)-3 on behalf of the eligible NHCE), provided that long-term, part-time employees are excluded for purposes of determining whether the plan satisfies the ADP safe harbor provisions of section 401(k)(12) or (13) pursuant to the election under paragraph (f)(1) of this section. Similarly, a plan that is intended to satisfy the ACP safe harbor provisions of section 401(m)(11) or (12) will not fail to satisfy those provisions merely because the employer does not make a nonelective or matching contribution on behalf of an eligible NHCE who is a long-term, part-time employee (or makes a nonelective or matching contribution that does not satisfy the safe harbor contribution requirements of § 1.401(m)-3 on behalf of the eligible NHCE), provided that long-term, part-time employees are excluded for purposes of determining whether the plan satisfies the ACP safe harbor provisions of section 401(m)(11) or (12) pursuant to the election under paragraph (f)(1) of this section.
(ii) Top-heavy minimum benefits. A plan that is a top-heavy plan for the plan year will not fail to satisfy the minimum benefit requirements of section 416(c) merely because the employer contribution (if any) made for the plan year on behalf of a non-key employee who is a long-term, part-time employee does not satisfy those requirements, provided that long-term, part-time employees are excluded for purposes of determining whether the plan satisfies the minimum benefit requirements of section 416(c) for the plan year pursuant to an election under paragraph (f)(2) of this section.
(iii) SIMPLE 401(k) contributions. An employer may not elect under paragraph (f) of this section to exclude long-term, part-time employees from the application of the SIMPLE 401(k) provisions of section 401(k)(11) and (m)(10). Accordingly, a plan intended to satisfy the SIMPLE 401(k) provisions of section 401(k)(11) or (m)(10) must satisfy the matching or nonelective contribution requirements of § 1.401(k)-4(e) with respect to long-term, part-time employees.
(3) Examples. The following examples illustrate the employer contribution rules of this paragraph (e). For purposes of the examples, each plan includes a cash or deferred arrangement and is maintained on a calendar-year basis.
(i) Example 1. (A) Employer E maintains Plan K, which is intended to satisfy the ADP safe harbor provisions of section 401(k)(12). Plan K provides that Employer E elects to exclude all long-term, part-time employees for purposes of determining whether Plan K satisfies the statutory requirements listed in paragraph (f)(1)(i) of this section, and the employer election satisfies the requirements of paragraph (f)(1)(ii) of this section. Plan K requires Employer E to make a QNEC on behalf of each eligible NHCE who is not a long-term, part-time employee equal to 3 percent of the NHCE's safe harbor compensation, and the NHCEs who receive this contribution include any former long-term, part-time employees who are eligible NHCEs. Plan K provides that Employer E is required to make a nonelective contribution on behalf of each long-term, part-time employee equal to 2 percent of the long-term, part-time employee's compensation for the plan year.
(B) Based on these facts, long-term, part-time employees are excluded for purposes of determining whether Plan K satisfies the statutory requirements listed in paragraph (f)(1)(i) of this section (to the extent the provision would otherwise apply to Plan K), including the ADP safe harbor provisions of section 401(k)(12). Accordingly, Plan K does not fail to satisfy the safe harbor nonelective contribution requirement of § 1.401(k)-3(b) merely because a safe harbor nonelective contribution is not made on behalf of each eligible NHCE who is a long-term, part-time employee. In addition, because long-term, part-time employees are also excluded for purposes of determining whether Plan K satisfies the nondiscrimination requirements of section 401(a)(4), any nonelective contribution made on behalf of a long-term, part-time employee is disregarded for purposes of determining whether nonelective contributions satisfy the nondiscrimination requirements of section 401(a)(4).
(ii) Example 2. (A) Employer F maintains Plan L, which is intended to satisfy the SIMPLE 401(k) provisions of section 401(k)(11) and (m)(10). Plan L provides that Employer F may elect to exclude all long-term, part-time employees for purposes of determining whether Plan L satisfies the statutory requirements listed in paragraph (f)(1)(i) of this section. Employer F elects to exclude all long-term, part-time employees for the plan year in accordance with the requirements of paragraph (f)(1) of this section. Plan L requires Employer F to make a matching contribution on behalf of each eligible employee, excluding long-term, part-time employees (but including any former long-term, part-time employees who are eligible employees), equal to 100 percent of the elective contributions of the employee for the plan year, up to 3 percent of the SIMPLE compensation of the employee for the entire plan year. Plan L does not provide for any employer contributions (other than elective contributions) to be made on behalf of long-term, part-time employees.
(B) Plan L fails to satisfy the SIMPLE 401(k) provisions of section 401(k)(11) and (m)(10) for the plan year because Plan L does not require Employer F to make the matching contribution on behalf of each eligible employee on whose behalf elective contributions were made for the plan year.
(f) Employer elections —(1) Nondiscrimination and coverage —(i) General rule. Subject to paragraph (f)(1)(ii) of this section, an employer may elect to exclude long-term, part-time employees for purposes of determining whether the plan satisfies the following provisions:
(A) The nondiscrimination requirements of section 401(a)(4);
(B) The ADP test of section 401(k)(3);
(C) The ADP safe harbor provisions of section 401(k)(12) and (13);
(D) The ACP test of section 401(m)(2);
(E) The ACP safe harbor provisions of section 401(m)(11) and (12); and
(F) The minimum coverage requirements of section 410(b).
(ii) Additional requirements. An employer election satisfies the requirements of this paragraph (f)(1)(ii) if—
(A) The election applies for purposes of every provision under paragraph (f)(1)(i) of this section (to the extent the provision would otherwise apply to the plan);
(B) The election applies with respect to all long-term, part-time employees who are eligible to participate in the arrangement;
(C) With respect to a plan that is intended to satisfy the ADP safe harbor provisions of section 401(k)(12) or (13), the election is set forth in the plan and satisfies the plan year requirements of § 1.401(k)-3(e); and
(D) With respect to a plan that is intended to satisfy the ACP safe harbor provisions of section 401(m)(11) or (12), the election is set forth in the plan and satisfies the plan year requirements of § 1.401(m)-3(f).
(2) Top-heavy —(i) General rule. Subject to paragraph (f)(2)(ii) of this section, an employer may elect to exclude long-term, part-time employees for purposes of determining whether the plan satisfies the vesting and benefit requirements of section 416(b) and (c). This election does not apply for purposes of determining whether the plan is a top-heavy plan as defined in section 416(g). However, in the case of an employer that makes an election described in paragraph (f)(1) of this section (which has the effect of excluding long-term, part-time employees for purposes of determining whether the plan satisfies the ADP and ACP safe harbor provisions), the plan will not fail to be excluded from the definition of a top-heavy plan under section 416(g)(4)(H) merely because the employer does not make nonelective or matching contributions on behalf of long-term, part-time employees (or makes nonelective or matching contributions that do not satisfy the requirements for safe harbor contributions).
(ii) Additional requirements. An employer election satisfies the requirements of this paragraph (f)(2)(ii) if—
(A) The election applies with respect to all long-term, part-time employees who are eligible to participate in the arrangement; and
(B) The terms of the plan provide that long-term, part-time employees are excluded from the application of the vesting and benefit requirements of section 416(b) and (c).
(3) Examples. The following examples illustrate the employer election provisions of this paragraph (f). For purposes of the examples, each plan is maintained on a calendar-year basis and includes a cash or deferred arrangement, which is intended to satisfy the ADP test of section 401(k)(3).
(i) Example 1. (A) Employer G maintains Plan M. Plan M provides that Employer G may elect to exclude all long-term, part-time employees for purposes of determining whether Plan M satisfies every provision under paragraph (f)(1)(i) of this section (to the extent the provision would otherwise apply to Plan M). Employer G elects to exclude all long-term, part-time employees for the plan year in accordance with the requirements of paragraph (f)(1) of this section. Plan M requires Employer G to make a nonelective contribution on behalf of each eligible employee equal to 2 percent of the compensation of the employee for the plan year.
(B) Based on these facts, long-term, part-time employees are excluded for purposes of determining whether Plan M satisfies every provision under paragraph (f)(1)(i) of this section for the plan year (to the extent the provision would otherwise apply to Plan M), including the nondiscrimination requirements of section 401(a)(4). Accordingly, any nonelective contribution made on behalf of a long-term, part-time employee for the plan year is disregarded for purposes of determining whether nonelective contributions made for the plan year satisfy the nondiscrimination requirements of section 401(a)(4).
(ii) Example 2. (A) Employer H maintains Plan N. Plan N provides that all long-term, part-time employees are excluded from the application of the vesting and benefit requirements of section 416(b) and (c). Plan N requires Employer H to make a nonelective contribution on behalf of each eligible employee who is credited with at least 1,000 hours of service during the plan year equal to 3 percent of the compensation of the employee for the plan year. Plan N provides that each employee has a 100-percent nonforfeitable right to any nonelective contribution Employer H makes on behalf of the employee. Plan N is a top-heavy plan with respect to the plan year.
(B) Based on these facts, long-term, part-time employees are excluded from the application of the vesting and benefit requirements of section 416(b) and (c) for the plan year. Accordingly, although Plan N is a top-heavy plan with respect to the plan year, Plan N is not required to satisfy the top-heavy benefit provisions of section 416(c) for the plan year with respect to any non-key employee who is a long-term, part-time employee.
(g) Applicability date. This section applies to plan years that begin on or after January 1, 2024.