Guidance Released for Long-Term, Part-Time Employees in 403(b) Plans

The IRS has issued guidance addressing long-term, part-time employees in 403(b) retirement plans under the SECURE 2.0 Act, which applies to 403(b) plans beginning in 2025. The IRS also announced a delayed applicability date for related final 401(k) regulation. (IR 2024-257, 10/3/2024; Notice 2024-73, 2024-43 IRB)

This guidance, which is in Question-and-Answer format, addresses discrete issues, including how the rules apply to permitted exclusions from participation for part-time employees and student employees, and how the nondiscrimination rules of section 403(b)(12) interact with the ERISA long-term, part-time (LTPT) employee rules for a section 403(b) plan.

The ERISA LTPT rules were added under section 125 of the SECURE 2.0 Act of 2022 and are effective for plan years beginning after December 31, 2024.

The notice also announces that:

1. the IRS anticipates issuing proposed regulations with respect to section 403(b)(12)(D) and guidance with respect to sections 202(c) and 203(b)(4) of ERISA, and
2. the final regulations the IRS intends to issue related to long-term, part-time employees under section 401(k) plans will apply no earlier than to plan years that begin on or after January 1, 2026.

Comments requested.

Finally, the IRS also asks for comments on the application of Code Sec. 403(b)(12)(D) and section 125 of the SECURE 2.0 Act to section 403(b) plans and on any rules relating to section 401(k) LTPT employees (including former section 401(k) LTPT employees) that should apply differently for ERISA LTPT employees under section 403(b) plans.

Comments should be submitted in writing on or before December 20, 2024, and should include a reference to Notice 2024-73.

Comments can be submitted electronically via the Federal eRulemaking Portal at www.regulations.gov (type “Notice 2024-73” in the search field on the Regulations.gov home page to find this notice and submit comments).

For more information about the nondiscrimination rules applicable to 403(b) plans, see Checkpoint’s Federal Tax Coordinator ¶H-12464.