Only 44% of part-time workers have access to a retirement plan at work, compared with nearly all full-time workers, according to the Bureau of Labor Statistics' March 2025 benefits survey. If you sponsor a 401(k) and employ part-timers, Congress has spent the last several years closing that gap — using your plan to do it.
Here is the part that should get your attention: employees who worked at least 500 hours in both 2024 and 2025 just crossed the finish line. For a calendar-year plan, they must be allowed to start making 401(k) contributions in 2026. And your plan document — the actual legal paper, not just your good intentions — must be amended in writing to reflect the long-term part-time rules by December 31, 2026.
Miss the first and you have an operational failure that can disqualify plan features or force expensive corrections. Miss the second and your document no longer matches how you run the plan, which is its own compliance violation. This guide walks through who counts, what you owe them (less than you fear), the traps that catch small employers, and a checklist to get done before New Year's Eve.
Who counts as a long-term part-time employee
The rule comes in two layers, from two laws. You need both, because both are in force right now.
Layer 1 — SECURE 1.0 (effective for 2024 plan years). A 401(k) plan must let an employee make elective deferrals once the employee is at least 21 years old and has completed at least 500 hours of service in three consecutive 12-month periods.
Layer 2 — SECURE 2.0 (effective for plan years beginning after December 31, 2024). Congress shortened the wait to two consecutive 12-month periods of 500+ hours, and extended the rule to ERISA-covered 403(b) plans as well. So for a calendar-year plan, an employee who logged 500 hours in 2024 and 500 hours in 2025 must be treated as eligible at the start of 2026.
Two exclusions apply: collectively bargained employees and nonresident aliens with no U.S.-source income are carved out of these provisions. Everyone else on your payroll who clears the age and hours bar is in.
Note the 12-month periods are eligibility computation periods defined by your plan — often, but not always, the calendar year. If your plan uses anniversary-year computation periods, the math shifts. Confirm which measuring stick your document uses before you run the census; this is the single most common place small employers miscount.
Why 2026 is the crunch year, not 2025
Think of 2026 as the year two clocks ring at once.
Clock one: the first big SECURE 2.0 cohort enters. The two-year rule needed two full measuring years to produce anyone. Those years were 2024 and 2025. That means January 1, 2026 (for calendar-year plans) is the first entry date where the shortened two-year standard actually puts people into plans. If you checked your roster in 2024 under the old three-year standard and filed the question away, your answer has changed: re-run the census now.
Clock two: the paperwork deadline. IRS guidance (Notice 2024-02 and related updates) gave plan sponsors extra time to adopt formal written amendments for SECURE 1.0, the CARES Act, and SECURE 2.0 changes. For most non-collectively-bargained qualified plans — which includes a typical small-business 401(k) — that extended deadline is December 31, 2026. Collectively bargained and governmental plans get later dates, but if that is not you, New Year's Eve is your line.
Understand the split the IRS is drawing: plans have been required to operate in compliance since each provision's effective date. The amendment deadline is only about getting the paper to match the practice. Running the plan correctly but never amending, or amending beautifully while operating it wrong, both fail. You need both halves.
What you owe these employees (it is less than you think)
This is where most small-business owners overreact in one direction or underreact in the other. The law is deliberately narrow:
- You must let them contribute their own money. Elective deferrals — pre-tax and Roth, if your plan offers Roth — must be available once they qualify, subject to your plan's normal entry dates.
- You do not have to give them a match. Employer matching and nonelective contributions are not required for long-term part-time employees, unless your plan document says otherwise. Read that last clause twice: if your document's definition of eligible employee accidentally sweeps them into the match formula, you owe the match. Many small plans need the amendment precisely to draw this line cleanly.
- You generally get testing relief. Long-term part-time employees may be excluded from certain nondiscrimination tests (ADP/ACP) and top-heavy testing while they hold that status. This is Congress's bargain: let them save, without blowing up your compliance testing.
- Vesting runs on a faster clock. For anyone with LTPT history, a "year of service" for vesting purposes is a 12-month period with at least 500 hours — not the traditional 1,000. Someone your system shows as 30% vested under the 1,000-hour rule may legally be 60% vested. Get this wrong and you forfeit money that was never yours to forfeit.
The trap: the "former LTPT" rule
Here is the mistake that turns a clean setup into a correction project. The testing exclusions and the no-match-required treatment apply only while someone is an LTPT employee. The moment that worker satisfies your plan's regular eligibility conditions — say they pick up enough shifts to clear 1,000 hours — they graduate to ordinary participant status. From that plan year on, they get the match, the nonelective contributions, and full inclusion in testing like anyone else.
But the 500-hour vesting rule follows them even after graduation. So your administrator has to track two populations with two vesting clocks indefinitely: regular hires on the 1,000-hour vesting measure, and current plus former LTPTs on the 500-hour measure. Payroll and recordkeeping systems set up for one uniform rule will silently mis-vest people for years. Ask your recordkeeper, in writing, how they flag LTPT and former-LTPT status before you assume the software handles it.
Five mistakes small employers make with this rule
1. Never running the hours census. The rule keys off hours actually worked across consecutive computation periods. If nobody pulls the report, eligible employees never get their enrollment packet, and every missed deferral opportunity is a correctable failure with interest. Pull hours for 2023 through 2025 now, using your plan's computation period — not just the calendar year by habit.
2. Forgetting the 403(b) expansion. Nonprofits, schools, and clinics that sponsor ERISA 403(b) plans sometimes assume the LTPT project is a 401(k) problem. SECURE 2.0 brought 403(b) plans into scope starting with 2025 plan years. If that is you, your first LTPT entrants may already be waiting.
3. Applying the 1,000-hour vesting schedule to everyone. As described above, LTPT and former-LTPT vesting years are earned at 500 hours. A uniform vesting report is wrong by construction. Maintain the separate count.
4. Accidentally promising the match. Review your plan's eligibility definitions for matching and nonelective contributions. If the language does not affirmatively exclude LTPT employees, you may be contractually on the hook for contributions the statute never required. This is exactly what the December amendment should fix — with your attorney or third-party administrator drafting, not a do-it-yourself edit.
5. Treating the amendment deadline as the start date. December 31, 2026 is the last day to sign conforming amendments, not the day to begin thinking about them. Amendments require your TPA to draft, you to review and adopt, and payroll to implement deferral elections for new entrants — a chain that does not compress into the last week of December. Start the conversation this fall.
Your pre-December 31 checklist
Work through these in order, with your third-party administrator or benefits counsel in the loop:
- Confirm your computation periods. Calendar year or anniversary year? Your hours census is meaningless until this is settled.
- Run the census. Identify everyone age 21+ with 500+ hours in each of the last two (and three) consecutive periods. Flag who must enter on your next entry date.
- Deliver enrollment materials. Eligible LTPT employees need notices and deferral election opportunities on the same entry-date schedule as anyone else. Document delivery.
- Audit vesting records. Recompute vesting years at the 500-hour threshold for anyone with LTPT history, including former LTPTs who graduated to full status.
- Review testing and contributions. Confirm LTPTs were properly included or excluded from ADP/ACP and top-heavy testing for 2024 and 2025, and that no unintended match was promised or paid.
- Adopt the amendment. Execute the written plan amendment covering the LTPT provisions (plus any other pending SECURE/CARES items your TPA flags) no later than December 31, 2026. Keep the signed copy with your plan records permanently.
- Fix payroll feeds. Make sure deferral elections for new LTPT entrants actually flow from payroll to the recordkeeper, and reconcile the first two cycles.
The bookkeeping angle: hours are a plan asset
Strip away the benefits jargon and this rule is a data-integrity problem — exactly the kind bookkeeping discipline solves. Eligibility turns on hours worked per computation period, per employee, across multiple years. That means your payroll system's hour detail is now a retirement-plan record, and it must survive employee turnover, provider changes, and audits years from now.
Three practical habits pay for themselves: keep granular hours (not just dollars) in your payroll ledger indefinitely rather than purging old periods; reconcile LTPT deferral deductions from payroll to the recordkeeper's contribution report every cycle, the way you would reconcile any clearing account; and book TPA amendment and compliance-review fees to a distinct professional-services or benefits-administration account so the true cost of plan sponsorship is visible at year-end instead of buried in miscellaneous expense. Accurate books from day one turn a December scramble into a routine close.
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