This continues our series of posts regarding the SECURE Act of 2019. As discussed in our previous articles, Cadillac Tax Sent to the Junkyard… and 72 is the New 70 ½ for RMD’s…, the SECURE Act has made numerous changes to taxes, health plans, and, now, even retirement plans.
Effective for plan years beginning after December 31, 2020, the SECURE Act will require employers to allow part-time workers to participate in the employer’s 401(k) plans. This requirement applies to all plans except for collectively bargained plans.
To be eligible to participate, employees must be age 21 or older and must complete either 1000 hours of service in one year (the current rule) or complete at least 500 hours of service each year for three consecutive years. The good news for plans is that these new part-time participants (i.e., those who are eligible under the 500 hours for three years rules) may be excluded from safe harbor contributions, non-discrimination and top-heavy requirements. Additional good news for employers is that only hours worked after January 1, 2021 will count toward the three year requirement for the part-time workers.
Employers will need to amend their plan documents, Summary Plan Descriptions, employee handbooks, and other related disclosures prior to the 2022 plan year (or possibly later if the Treasury Department provides for a later date). The impact of the SECURE Act is far reaching for employee benefit plans, and we will continue to address other parts of this legislation in future blog posts.