Currently, the law provides that a part-time employee that works 1,000 hours over the appropriate one-year measurement period must be permitted to participate in a qualified retirement plan. If your plan currently requires all employees to attain 1,000 hours or excludes part-timers that have never attained the 1,000-hour threshold, the SECURE Act will require your plan to permit deferrals for part-time employees that have worked at least 500 hours each year over a consecutive three-year period.
The first year that an employer would be required to allow a Long Term Part-Time employee to defer would be for the first day of the plan year beginning in 2024. However, the new requirement to begin counting and maintaining hours to determine the 500-hour threshold begins in the 2021 plan year. Accordingly, if you have part-time employees for whom you aren't tracking hours, you must begin to maintain their hours as of the first day of the 2021 plan year, and you must keep the annual records to be able to demonstrate compliance with the new law.
No. The new law only requires Long Term Part-Time Employees to be eligible for deferrals. However, the SECURE Act requires that Long Term Part-Time Employees receive a full year of vesting service for each 500-hour year of service performed. Vesting would apply if the participant were to become eligible for employer contributions.
An employer is not required to enroll Long Term Part-Time employees unless they have attained age 21. Part-timers that are in a valid non-service related classification may also be excluded. For example, if all employees that work in a certain office or perform certain job functions are excluded, then a part-time employee falling under that classification may also be excluded.
The SECURE Act exempts Long Term Part-Time employees from ADP testing. However, these participants would be counted towards Form 5500 participant counts.
Fortunately, the law does not take full effect until 2024. In the meantime, we anticipate further guidance from the IRS that should help guide employers in formulating plan design strategies. Initially, one strategy may be to continue to require 1,000 hours for employer contributions, but permit all employees to defer upon their hire date or a period of elapsed time such as 3 months or 6 months (this strategy would require ADP testing). Another strategy would be to add an hours equivalency such as 10 hours per day rather than counting hours. While these strategies would result in earlier participation by employees, they would help reduce the administrative and compliance burdens.
If you have any questions, please contact your Sentinel Plan Consultant or Advisor.
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