As we all know the Employee Benefit Services Administration (EBSA) is charged with protecting the rights of qualified plan participants. This mandate extends to those participants who terminated employment and still have a vested benefit left in the plan, or the deferred vested participants. A fiduciary’s responsibilities to a deferred vested participant are the same as the responsibilities to participants who are still employed by the plan sponsor.
When ERISA was originally signed into law, qualified retirement plans were required to allow employees to become participants once they had completed 1 year of service in which they had completed 1,000 hours of service and attained age 25. The age requirement was eventually lowered to age 21, but the 1,000 hours in 12 months has remained.
These eligibility requirements ensured part-time employees were not allowed to enter the plan, thus reducing employer costs and helping to ensure passage of coverage and discrimination testing. The SECURE Act of 2019 has changed this, but only for Long Term Part Time (LTPT) employees and only for 401(k) deferral purposes . A LTPT employee is an employee who has worked less than 1,000 hours, but more