The Setting Every Community Up for Retirement Enhancement Act has paved the way for requiring that employers allow part-time workers to participate in their 401(k) plans.
If you are an employer that offers 401(k) retirement plans to its full-time workers, you need to be aware of the changes brought on by the SECURE Act, particularly in regard to being required to include part-time workers.
Employers are required to start preparing for the new rules by keeping track of part-time employee hours starting January 1 2021, as that was when the clock started ticking on counting their hours during the year for eventual 401(k) plan eligibility in 2024.
The legal requirements
The law sets out all of the parameters and rules for employer-sponsored 401(k) plans, including:
- Plans must now allow part-time employees who work at least 500 hours over three consecutive 12-month periods that begin on or after January 1, 2021, and satisfy any applicable age requirement, to make elective pre-tax deferrals. Qualifying part-time workers are referred to as long-term, part-time employees for the sake of these rules.
- Plans can exclude any part-time employee who did not complete at least 1,000 hours of service in any eligibility period, and where a year of vesting service was generally based upon the completion of 1,000 hours of service during any vesting period.
- For plans that include eligibility requirements based on age, a long-term, part-time employee would become eligible on the later of reaching that age (typically 21) and the end of the applicable three-year period.
- Any consecutive 12-month period beginning before 2021 cannot be included for the purposes of determining long-term, part-time employee status.
- Long-term, part-time employees cannot participate in employer-sponsored 401(k) plans until Jan. 1, 2024.
- While long-term, part-time employees must be permitted to make pre-tax contributions upon request, employers are not required to provide matching contributions or profit-sharing contributions until the employee satisfies the plan's service and age requirements for such contributions.
- If a long-term, part-time employee eventually becomes eligible for employer contributions subject to a vesting schedule, then all years in which they work at least 500 hours (even years before January 1, 2021) must count for vesting, excluding years of service worked before age 18.
- These new rules do not apply to union workers who go through a collective bargaining process.
- Plan sponsors will be required to make amendments to their plan to reflect these new rules until the last day of the 2022 plan year.
This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.