American Retirement Association Asks IRS for More Time on LTPTE Rule

The release of a proposed regulation that provides guidance on the “long-term part-time employee” (LTPTE) rules a mere 25 days before they’re effective places too great a burden on plan sponsors to comply, the American Retirement Association (ARA) wrote in a letter to the Internal Revenue Service (IRS) on Nov. 29.

The proposed reg, first added to the tax code in 2019, is effective on Jan. 1, 2024, a compressed period that the ARA said is “unreasonable and unprincipled,” and respectfully requested that the IRS grant administrative relief as soon as possible.

“We are acutely aware of the difficult position our members and their clients find themselves in due to the timing of this guidance,” said ARA’s Director of Regulatory Policy, Kelsey Mayo. “We hope this request will bring the matter to the IRS’s attention, and they will take prompt action.”

The ARA focused on three points in particular:

• The interpretation of the vesting rule creates irreversible administrative complexities if the plan uses the LTPTE service rule;
• Participants have entered the plan as LTPTEs in 2023, and therefore, the rule has retroactive consequences that cannot be reversed; and
• Plan sponsors that would have LTPTEs entering for the first time in 2024 do not have sufficient time to respond by adjusting the plan design to avoid the irreversible administrative complexities introduced by the Proposed Regulation.

“Immediate administrative transition relief from the LTPTE rules is essential,” according to the letter. “While the LTPTE rules were initially enacted in 2019, there were a host of unanswered questions that have a meaningful impact on plan design. The Proposed Regulation answers a number of those questions but does not provide sufficient time for plan sponsors to analyze and adjust plan design in response to the guidance, which in some cases is essentially effective retroactively …”

It further detailed nine steps that service providers (primarily TPAs and recordkeepers) would have to take to comply, something ARA argued is impossible before the Jan. 1 deadline.

While noting the guidance is necessary to promote sound tax administration by clarifying administration, supporting flexibility in plan design, and improving economic efficiency by reducing the complexity and burdens of the plan sponsor, the letter concluded by asking again for adequate time so plan sponsors can understand the Proposed Regulation and design their plans accordingly.