Initially enacted as part of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, this mandatory provision should be applied to plan years beginning after December 31, 2020. The provision requires long-term, part-time employees that have reached specified minimum age requirements and worked at least 500 hours in each of 3 consecutive 12-month periods be permitted to make elective contributions to an employer-sponsored 401(k) retirement plan beginning January 1, 2024.
This will require plan sponsors to track part-time employee hours over consecutive years and allow them to participate in the retirement plan. Plan sponsors should keep in mind that just because the law requires this employee class entry into the retirement plan, it does not require the plan sponsor to pay employer contributions to them.
To further complicate the plan sponsors and their third-party administrators present task of implementing this new requirement, Congress amended the law as part of SECURE 2.0 enacted in December 2022. SECURE 2.0 revised the eligibility requirement from SECURE 1.0 of 3 consecutive 12-month periods to 2 consecutive 12-month periods of 500+ hours worked, and the employee has to have attained the age of 21 by the end of the 24-month period (to be applied to plan years beginning after December 31, 2022). In addition, SECURE 2.0 clarified that when counting years of service for both eligibility and vesting purposes only plan years beginning after January 1, 2021 should be taken into account.
What this means to the human resources and payroll departments of plan sponsors, and their third-party administrators, is that they will need to track part-time employee hours for the time being under 2 different sets of standards.
To comply with SECURE 1.0, plan sponsors will need to review 2021 – 2023 plan years’ hours of part-time employees to determine if they have 3 consecutive years of 500+ hours. If so, plan sponsors will be required to allow them to participate in the retirement plan for plan years beginning after December 31, 2023.
Prior to January 1, 2025, to comply with SECURE 2.0, plan sponsors will need to review 2023-2024 plan years’ hours of part-time employees to determine if they have 2 consecutive years of 500+ hours. If so, plan sponsors will be required to allow them to participate in the retirement plan. Each year thereafter, a review will be required to determine if 2 consecutive years of 500+ hours has been met by any part-time employee upon which the employee must be allowed to participate in the retirement plan.
Final note: Employer sponsored 403(b) plans subject to ERISA are excluded from SECURE 1.0; however, are subject to the rules in SECURE 2.0 and will need to review hours of part-time employees prior to January 1, 2025. Expect minimal impact to such retirement plans due to the current “universal availability” rule specific to 403(b) plans; however, without further guidance SECURE 2.0 appears to supersede the “universal availability” rule beginning January 1, 2025.
Contact the professionals at Gilliam Bell Moser LLP for additional information.