The SECURE Act, enacted on December 20, 2019, includes a provision that expands eligibility to certain “long-term part-time” employees. Section 112 of the SECURE Act defines a long-term part-time employee as an employee that has worked 500 or more hours in three consecutive 12-month periods, and who has attained a minimum age, not to exceed 21.
Under the SECURE Act, qualifying long-term part-time employees must be permitted to make elective deferrals in a section 401(k) plan as of the first applicable entry date following completion of the 36-month period. As of January 1, 2021, employers must track employee hours as it pertains to this provision. Aligned with this timing, long-term part-time employees are required to participate in a 401(k) plan for elective deferral purposes starting on January 1, 2024.
Rules & Exceptions
Eligible employees under the terms defined in the SECURE Act are not required to share in employer contributions, such as matching. Nonetheless, an employer can choose to make long-term part-time employees eligible for employer contributions. Long-term part-time employees are also excluded from nondiscrimination testing, coverage testing and top-heavy testing.
While service earned prior to 2021 is not considered for plan eligibility, it is considered for vesting. Employers should count each year that an employee has worked a minimum of 500 hours of service, as that year of service does count towards vesting. This includes every year of service with the company, not just the years of service worked after January 1, 2021.
If you, as an employer, have any questions about tracking hours of service for part-time, seasonal and temporary employees and the current guidance, please contact our team.