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The Part Time, Long Term Problem

part time

The SECURE Act made a profound change that will affect any 401(k) plan with part time employees by requiring that long term, part time employees be able to make deferrals in a 401(k) plan

For plan years beginning after Dec. 31, 2020, a 401(k) plan must allow any nonunion employee of the sponsoring employer (or other participating employer) to participate in making elective deferrals as of: the close of the first 12-consecutive month period during which the employee is credited with at least 1,000 hours of service or, if later, the employee’s attainment of age 21, or  the close of the first period of three consecutive 12 months during which the employee is credited with at least 500 hours of service in each 12-month period or, if later, the employee’s attainment of age 21. An employee who does meet this three-year eligibility requirement is referred to as a “long-term part-time employee.”

Plan sponsors must begin tracking hours for these employees on January 1, 2021. That means the first point at which an employee will qualify for participation in a 401(k) plan as a long-term, part-time worker is January 1, 2024.

 

For any employer contributions allocated to the plan account of a long-term part-time employee, the employee must be credited with one year of vesting service for each 12-month period during which the employee completes at least 500 hours of service. The Internal Revenue Services clarifies that all years of service, even years before 2021, must be considered for determining a long-term part-time employee’s vesting in any employer contributions allocated to that participant’s account, unless those years otherwise may be disregarded per the plan document.

Also, break in service rules will be changed for these  part time employees. Normally, a break in service is defined as a year in which an employee has not completed more than 500 hours of service. For long-term, part-time workers, it is defined as a year in which the employee did not complete at least 500 hours of service.

 

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