The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, was approved on December 20th ,2019 and includes a new requirement for 401k plans to permit part-time employees who work at least 500 hours for three consecutive years to make elective deferrals. Because of this, employers will need to start tracking the hours of long-term, part- time workers, effective 2021. However, they do not need to allow part-timers to contribute until 2024.
This new provision will place the most significant administrative burden on retirement plan sponsors even as it signals a positive step for employees.
Employees must work between 500 and 999 hours per year, for three consecutive years, before they can be eligible to make elective deferrals. Meanwhile, there are no changes to the present rules on employer-contribution eligibility, under which a plan can still impose a service requirement that excludes many part-time employees. However, these 500-to-999-hour years of part-time service will count toward employer contribution vesting purposes.
A plan may still impose age requirements that can render an employee ineligible if not met by the completion of the three consecutive years of 500 hours or more. The new rule will not impact the plan’s nondiscrimination testing in any way.
The new provision only covers 401k plans unless they are collectively bargained. Other types of elective deferral plans—the 403(b) and 457(b) plans, for example—already have their own elective deferral rules.
With the existing rules, tracking hours has its own considerable challenges. Adding the additional variable of part-time hours will pose bigger challenges.
Whether a plan sponsor outsources the task of timekeeping or conducts it in-house, the data issue that comes with this type of tracking is not yet addressed. This means that many sponsors may end up facing operational compliance errors under the new rule. With only six months left to start tracking hours, some are having trouble creating a plan that is compliant and effective.
Retirement plan sponsors do have alternatives that don’t require them to count hours:
1. Letting part-time employees make elective deferrals to the plan, regardless of hours worked
This will not cost the employer any money in terms of employer contributions because the standard age/service requirements still apply to employer matching and non-elective contributions. It’s unlikely that a huge number of part-time employees will contribute to the plan, which means there will be no negative effects on the average account balances that drive recordkeeper pricing.
2. Using equivalencies to credit the hours worked for purposes of the part-time service rule
This means that employees are credited with a certain number of hours for each period they work:
The SECURE Act part-timer provision does not directly address equivalencies. However, these equivalencies remain useful as it will benefit part-time employees like the SECURE Act provision.
Don’t let the new SECURE Act provision overwhelm you. Leverage Payroll Systems’ human- supported integrated and automated HR and payroll software and steer clear of any tracking confusion and compliance issues. Contact us to learn more about our highly scalable solutions.
The benefits of a payroll software/service can assist your company in more than just better overall productivity and profitability Whether you are investing in your first payroll software/service...
The minimum wage in the state of California has seen a yearly increase in recent years The change varies across cities and counties and is based on the amount of employees a company has For 2020,...
In addition to the widespread anxiety the current pandemic has caused, layoffs have become inevitable for many organizations The state of local and global economies is rapidly fluctuating- leaving...
When recalling furloughed employees, it is crucial that you adhere to your organization’s policies and procedures Basing a decision on pre-established guidelines can help avoid violating any...
Partnering with a payroll service provider offers significant benefits: cost savings, time savings, and minimized errors, among others To optimize these benefits, first you must find the right...
This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.