The Setting Every Community Up for Retirement Enhancement (SECURE) Act, includes a number of changes to employer-sponsored retirement plans. Of particular interest to employers is a change which requires employers to permit long-term, part-time workers to participate in employer-sponsored retirement plans. This requirement opens eligibility to employees that complete either 1,000 hours within one year or 500 hours in each of three consecutive years.
If the employee enters the Plan under this Long-Term Part-Time (LTPT) rule, employees must be allowed to defer from their own pay, but employers are not required to provide matching contributions on their deferrals, or non-elective contributions for employees who become eligible for the 401(k) plan under this rule.
The calculation period starts for years beginning on January 1, 2021, with the first LTPT employee becoming eligible to participate in the Plan on January 1, 2024. For more information on the LTPT rule review these Frequently Asked Questions.
The SECURE Act includes other important provisions. Click here for more information.
Please Note: There is legislation pending in Congress that, if passed, would reduce the number of years (of between 500 and 1,000 hours of service) required for Long Term Part Time employees to become eligible to make elective deferrals in a 401(k) retirement plan from 3 years of service to 2 years of service. If the proposed legislation is enacted, a long-term part-time employee would first become eligible to participate in a retirement plan on January 1, 2023 rather than January 1, 2024. ADP will notify you if the legislation is passed by Congress and signed into law by President Biden.
Next Steps
Although the SECURE Act targets small businesses specifically, it will have sweeping effects on employers, employees and the retirement industry as a whole.
Employers have decisions in advance of their 2024 plan year regarding plan design such as whether to provide LTPT employees with employer matching contributions, revising the vesting schedule for employer contributions or even permitting all part-time employees to participate in order to avoid tracking hours. Updates will be required for plan documents, summary plan descriptions and any relevant employee handbook policies
ADP is continuing to assess our ability to assist clients in determining when employees have met LTPT hours requirements and will communicate the availability of any solutions in the future.