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Part-Time Employees - SECURE Act Changes for 401(k) Retirement Plans


SECURE Act Changes for 401(k) - Best TPA Retirement Plan Administration Cash Balance Plans

Background - SECURE Act 1.0 and Before ERISA and the Internal Revenue Code restrict the maximum age and service requirements for eligibility to make 401(k) employee elective deferrals to age 21 and 1 year of service respectively. A plan may require up to 1,000 hours in a 12-month period to attain 1 year of service.

Most of our clients are using these maximum requirements in their existing 401(k) retirement plan. By design, using them typically results in the exclusion from the plan of part-time employees even if they have a long period of employment with the company.

Lawmakers attempted to address the lack of plan coverage for long-term part-time employees by making SECURE Act changes for 401(k) retirement plans. The original Secure Act from 2019 provides that effective in 2021 employees who work three consecutive 12-month periods with at least 500 hours of service must be covered by a 401(k) plan’s elective deferral arrangement.

This means a long-term part-time employee could enter a plan under these provisions January 1, 2024. A plan can still impose an age requirement (up to age 21). No matching or other employer contributions need to be made, and these LTPT employees can be excluded from non-discrimination testing.

New Rules - SECURE 2.0 SECURE 2.0 was signed into law in December 2022. It reduces the requirement to determine hours for long- term part-time employees from three consecutive years to two. The earliest a long-term part-time employee would enter a plan under this expanded provision would be 2025.


Key Takeaways

  • Long-term part-time employees can enter a 401(k) plan in the 2024 plan year based on the three- year requirement of the original SECURE Act.

  • Plan sponsors of 401(k) plans should review hours for part-time employees starting with plan years beginning in 2021 (consider using an equivalency method if exact hours are not available).

  • Plan sponsors need to determine if they have any existing employees impacted by these new rules and if so, ensure they are given the option to enroll before 1/1/2024.

  • Sponsors should add to their existing plan enrollment process, giving the LTPT employees who meet these requirements the option to enroll in making deferrals at the appropriate time.

  • For 2025 and later years LTPT employees will enter the plan based on the two-year requirement of the SECURE 2.0 Act.

Conclusion Providence is here to help you navigate these complex changes. We will be reaching out to our clients to determine if they have any LTPT employees impacted by these new rules. Plans that do not comply with these rules will be in violation of the qualification requirements and for periods after December 31, 2024. The LTPT changes require employers to maintain accurate records, and providers to update their systems appropriately for non-discrimination testing and for reporting purposes.

If you have questions about complying with these requirements, please contact us. Email or call Nic Miller: nmiller@providence-retirement.com or 512-814-5752.



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