The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) includes a provision that would require 401(k) plans to cover certain part-time employees who were previously excludable.
Under prior law, 401(k) plans were permitted to exclude employees who failed to complete at least 1,000 hours of service in a 12-month eligibility period. Section 112 of the SECURE Act provides that, for plan years beginning after December 31, 2020, 401(k) plans must also cover part-time employees who completed at least 500 hours of service each year for three consecutive years and are age 21 or older. The provision also stipulates that service prior to January 1, 2021, is not counted for purposes of this new rule, meaning that January 1, 2024, is the earliest anyone could qualify for participation under the new regulation.
An employer may elect to exclude these participants from safe harbor contributions, nondiscrimination testing, and top-heavy requirements, but if the employer provides matching or non-elective contributions, participants must be credited with a year of vesting service for each year in which they complete more than 500 hours of service.
Interested in learning more about the SECURE Act? Download the SECURE Act eBook from the Schneider Downs Retirement Solutions team for a full overview of provisions and highlights at www.schneiderdowns.com/secure-act-ebook.
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.