Treasury and IRS Publish Guidance on LTPT Rules for 401(k) and 403(b) Plans

October 10, 2024

The U.S. Department of the Treasury and IRS published guidance on the long-term part-time rules that apply to 401(k) and ERISA-covered 403(b) plans, as amended by SECURE 2.0. This guidance, Notice 2024-73, primarily focuses on how the new LTPT rules apply to these 403(b) plans, although it also provides a delay of the applicability date for the proposed regulations interpreting the LTPT rules for 401(k) plans.

First, the Notice states that the proposed regulations interpreting the LTPT rules, once finalized, will apply "no earlier than to plan years that begin on or after January 1, 2026." Note: This does not mean that the LTPT rules do not apply until 2026 but rather that the interpretations in the proposed regulation will not apply until at least then, and before that, plans should apply a reasonably good-faith interpretation of the LTPT rules.

Beyond the delayed applicability date, the most significant takeaway from Notice 2024-73 is an interpretation that favorably addresses concerns that had been raised about the interaction of the new LTPT rules for 403(b) plans and the long-standing "universal availability" rule, its exceptions, and the associated "consistency requirement." Notice 2024-73 includes an interpretation that will allow ERISA-covered 403(b) plans to continue excluding part-time employees who normally work less than 20 hours per week, except to the extent that such employees must be permitted to make salary reduction contributions as LTPT employees.

The Notice indicates that the Treasury and IRS intend to propose regulations addressing the new LTPT rules for ERISA-covered 403(b) plans. The Notice also indicates that the Treasury and IRS anticipate that proposed regulations for 403(b) plans will be similar to the final regulations that address the LTPT rules for 401(k) plans. Comments on the Notice are requested by Dec. 20, 2024.

For more information on SECURE 2.0 or other retirement policy issues, contact Erica McFarquhar, Deputy General Counsel, or Irica Solomon, Head of Government Affairs.