Employers: Are You Tracking Hours for Your Part-Timers’ 401(K) Eligibility?
When the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was passed in 2019, it created more retirement plan options for U.S. employees, including part-time workers. Under the SECURE Act, part-time employees will now have the option to begin making elective deferral contributions toward their employers 401(k) plan beginning in 2024. Although plan providers have another two years until part-time employees may begin making contributions, employers must begin tracking their hours beginning with the 2021 plan year due to the consecutive three years requirement.
The SECURE Act allows part-time employees who work between 500 to 999 hours for three consecutive years to become eligible to make elective deferrals under their employer’s 401(k) plan beginning in 2024 (the tracking period begins after Dec. 31, 2020).
The new 401(k) provision for part-time employees applies only to elective deferrals, meaning plan providers can still impose their own eligibility rules that may exclude some of these employees, such as an age restriction. Part-timers who work less than 1,000 hours a year can also still be excluded from matching and other employer contributions. Although these certain service requirements may keep part-time employees from participating, the 500-to-999-hour years of part-time service will still count toward employer contribution vesting purposes. Keep in mind, this new provision will not impact the plan’s nondiscrimination testing in any capacity.
It is imperative employers begin tracking their part-time employee hours to have accurate documentation to determine an employee’s eligibility. This will also be useful information for future audits. To obtain assistance with handling this new rule or to learn more, contact a member of our dedicated Employee Benefit Plan Group today.