If you haven’t yet worked with your long-term part-time (LTPT) employees to enroll them in your company retirement plan, the time to act is now. Tom Koch, pension services manager for Scroggins, said it’s an important IRS rule that needs to be addressed sooner rather than later.
“If you don’t enroll someone, the IRS will make you not only complete the enrollment but put in the (back-owed) deferral for them,” he said.
So, who is considered an LTPT employee? The law states that any W2 employee who has worked at least 500 hours (but less than 1,000) for two consecutive years after 2020 is eligible to make elective deferrals from payroll. That’s a change from 2024, when three years were required. It’s important to note that while these employees can make their own deferrals, they are not eligible for employer contributions.
While Koch said it’s mostly a compliance matter, this new benefit can also be a tool to attract new part-time talent. For example, Koch said while the traditional wait time to participate in a retirement plan is usually one year and 1,000 hours worked, businesses actually have control over variables, such as how long their waiting period is and whether they offer a match.
“More employers are considering liberalizing those requirements to attract employees,” he said.
For those who do participate, the 2025 deferral rates are $23,500 standard, $31,000 for employees over age 50, and $34,750 for employees ages 60-63. Generally, for retirement plans established after December 29, 2022, with more than 10 employees, participants must be automatically enrolled starting at a deferral rate of no less than 3% unless they opt for another alternative. Plans established before this date or with fewer employees may have different enrollment procedures.
