SECURE Act Dictates Long-Term, Part-Time Employees Be Included in Retirement Plans

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, starting next year, will change the longstanding rule that permitted 401(k) plans to exclude individuals who work less than 1,000 hours in the plan year, as the Society for Human Resource Management (SHRM) notes in its analysis “Who Is a Long-Term, Part-Time Employee? 401(k) Plans Will Need to Know.”

Starting in 2021, the SECURE Act defines these workers as any employee who in each of the past three consecutive years worked between 500 and 999 hours. The employee might need to be at least 21 to participate and at least 18 for vesting. Thus, the first year that any long-term, part-time employee will be eligible to participate in a 401(k) plan is 2024, although plans can allow entry earlier.

There are some decisions related to this change that employers will want to consider, according to SHRM. To make it easier on themselves so that they don’t have to track hours, an employer could permit part-time employees to make their own contributions.

Employers could also impose a minimum 1,000-hour rule for participants to be eligible for matching contributions, thus excluding long-term, part-time employees from matches.

Imposing restrictions of age 18 for vesting and age 21 for participation are also options that employers may or may not impose. It is also up to employers to revise their company contribution vesting schedule.

Finally, employers will have to update loan documents, summary plan descriptions and other plan communications such as employee handbooks to advise employees of these new rules.

Law firm Sidley says employers should also coordinate with plan administrators and recordkeepers to ensure they are prepared to track hours for part-time employees starting on January 1. Employers need to amend plans by the last day of the first plan beginning on or after January 1, 2022, to provide for long-term, part-time employee participation.