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401(K) Plan Part-time Employee Eligibility Requirements

The SECURE Act which passed at the end of 2019 requires 401(k) plans to include long-term, part-time employees beginning January 1, 2021

Please note: The SECURE Act mandate does not apply to 403(b) plans and 457(b) plans, which have their own eligibility rules.

Employees who are 21 and older who work less than 1000 hours per year must be permitted to participate in the company’s 401(k) plan.  To be eligible, employees must complete 3 years of consecutive service working at least 500 hours. Service prior to January 1, 2021 does not count. Part-time employees meeting the service requirements after the three year period will be able to make elective deferrals into the plan.

While part-time employees won’t actually be able to start enrolling into the plan until 2024, employers implementing the provision must track hours worked starting in 2021. Plan administrators should make sure they are submitting payroll information for all employees to their recordkeeper in order to track part-time employee eligibility.

Employees that qualify under the 3-year service rule may be excluded from nondiscrimination testing and top heavy rules.  Employers are not required to match contributions or make profit sharing contributions to part-time employees participating in the plan.

Employers that choose to let part-time employees enroll in the plan under other conditions, i.e. no service requirement or allow immediate eligibility, will not be excluded from ADP testing. However, they will not have to track hours for eligibility.

Clients should reach out us with any questions they have on the eligibility requirements.

Sources:

“Miscellaneous Changes Under the Setting Every Community Up for Retirement Enhancement Act of 2019 and the Bipartisan American Miners Act of 2019,” IRS.gov, accessed December 30, 2020, (Source)

Posted in: 401(k), Business Owners

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