Federal: Long-Term Part-Time Employees to be Eligible for Employer’s 401(k)
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The SECURE Act, which was passed in 2019, requires that sponsors of 401(k) plans must allow eligible long-term part-time employees to begin participating as of January 1, 2024. To be eligible, these part-time employees must have worked at least 500 hours in 3 consecutive 12-month periods. The consideration period began January 1, 2019, so eligible employees employed since then will be eligible to participate January 1, 2024.
Employees must be eligible to make their own contributions but may not be eligible for employer contributions depending on the structure of the plan. However, when determining vesting percentages, employers must consider all years the employee worked 500 hours or more.
To cause more confusion, the SECURE 2.0 was signed in December 2022, and goes into effect December 31, 2024. Under SECURE 2.0, part-time employees are eligible to participate after 2 consecutive years of 500 hours or more. The counting period for this provision began January 1, 2023.
There are some exceptions to employees who may be eligible to participate such as those covered under a CBA and certain students.
Actions to take:
- Review the work hours for your long-term employees since January 1, 2021.
- Review your plan’s details (eligibility, contribution, vesting, etc.) with your plan administrator.
- Inform newly-eligible part-time employees when they are eligible.
- Continue to track the annual hours of your part-time employees to know when they become eligible under either act.
