Employers : Are You Tracking Hours for Your Part-Timers ’ 401 ( k ) Eligibility ?
By Janice Fortin CPA , MST Shareholder , Employee Benefit Plan Group
When the Setting Every Community Up for Retirement Enhancement Act ( SECURE Act ) was passed in 2019 , it created more retirement plan options for U . S . employees , including part-time workers . Under the SECURE Act , part-time employees will now have the option to make elective deferral contributions toward their employers 401 ( k ) plan beginning in 2024 .
Although plan providers have another two years until part-time employees may begin making contributions , employers must begin tracking their hours beginning with the 2021 plan year due to the consecutive three years rule .
Eligibility
The SECURE Act allows part-time employees who work between 500 to 999 hours for three consecutive years to become eligible to make elective deferrals under their employer ’ s 401 ( k ) plan beginning in 2024 ( the tracking period begins after Dec . 31 , 2020 ).
Provision Rules
The new 401 ( k ) provision for part-time employees applies only to elective deferrals , meaning plan providers can still impose their own eligibility rules that may exclude some of these employees , such as an age restriction . Part-timers who work less than 1,000 hours a year can also still be excluded from matching and other employer contributions .
Although these certain service requirements may keep part-time employees from participating , the 500-to- 999-hour years of part-time service will still count toward employer contribution vesting purposes . Keep in mind , this new provision will not impact the plan ’ s nondiscrimination testing in any capacity .
Plan Now
It is imperative employers begin tracking their parttime employee hours to have accurate documentation to determine an employee ’ s eligibility . This will also be useful information for future audits . To obtain assistance with handling this new rule or to learn more , contact a member of our dedicated Employee Benefit Plan Group today . ■
6 VIEWpoint Issue 1 | 2022