With the passage of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) and its successor, SECURE 2.0 in 2022, changes have been introduced to the retirement plan space. These adjustments specifically impact long-term part-time (LTPT) employee eligibility requirements that took effect on January 1, 2024.
Before the implementation of the SECURE Act, retirement plan sponsors could require a period of service no greater than age 21 or a year where an employee provided at least 1,000 hours of service to participate in a retirement plan. This left many part-time employees unable to qualify due to the hour requirement.
The SECURE Act required that from plan years beginning after December 31, 2020, employees with three consecutive years of at least 500 hours of service become eligible for participation in 401(k) plans if they met other eligibility criteria. Hours worked before January 1, 2021, were not considered.
SECURE 2.0 further amended this by allowing participation eligibility for employees with two consecutive years of at least 500 hours of service from December 31, 2024.
Retirement plan sponsors are now faced with increased administrative complexity due to these changes. They must consider whether to treat part-time employees differently from full-time employees regarding retirement plan participation.
To simplify administration or reduce costs while remaining compliant, sponsors might eliminate hour requirements altogether or require no more than a minimum number in a computation period. Alternatively, different service requirements could be set for receiving employer contributions for all employees or specifically for part-time staff.
Sponsors are advised to coordinate with internal stakeholders about their treatment policies concerning different types of employment status and consult ERISA counsel regarding current legislation implications. Engaging with retirement plan vendors is essential to align processes with legislative demands and company goals. It is also crucial to calculate any potential additional costs and update employee communications as necessary.
This article was co-authored by David Neikrug and Sara Shtutin from Optimatum; more about their services can be found online.