SECURE Act Initiates Seminal Retirement Plan Change: Prohibition on Exclusion of Part-Time Workers

The SECURE Act, signed into law at the end of 2019, brought several significant changes to retirement planning.  A major goal of the legislation was to enable and encourage the American worker to save for retirement.  One significant change is that businesses are now required to allow long-term, part-time employees to participate in employer-sponsored 401(k) plans.

Part-Time Workers

Currently, businesses are allowed to exclude part-time employees from participating in employer-sponsored retirement plans.  This includes all individuals who work fewer than 1000 hours each year, or about 21% of workers.  This disproportionately impacts women, seasonal workers, and workers with medical conditions that prevent them from working full-time and means that these individuals are unlikely prepared for retirement.

The SECURE Act requires employers who provide workers with retirement plans to have a dual eligibility requirement.  This change does not apply to collectively bargained plans.  Under the new legislation, workers who have 1,000 hours of service in the previous year or three consecutive years or at least 500 hours of work in the previous three years are now eligible to participate in employer-sponsored retirement plans.  This means that part-time and seasonal workers, including those who only work about 20 hours a week and those who work many more hours but only for a portion of the year, will be considered employees and eligible for retirement benefits.

Employer Incentives

Allowing part-time workers to access the employer-sponsored retirement benefits is going to lead to an increase in administrative work and processing costs.  To offset these costs, the SECURE Act offers three incentives for employers.

  1. Employees who are eligible due to the new rule can be excluded from nondiscrimination and coverage testing rules. They are also excluded from the application of top-heavy rules.  These relaxed testing rules will make it easier for employers to expand coverage to these individuals without having to significantly alter the plans they offer.
  2. The SECURE Act also offers tax credits to cover plan startup and employee education costs. Currently, small businesses that employ part-time workers are not required to offer retirement plans.  With these changes, many small businesses will be required to start providing retirement plans that are eligible for a tax credit of up to $15,000 to offset expenses.
  3. To further incentivize businesses to enroll employees in retirement plans, there is also a new tax credit for businesses that set up plans with an automatic enrollment feature. The SECURE Act includes a tax credit up to $500 per year for plans that feature automatic enrollment.

The benefits attorneys at Hall Benefits Law are excited about a number of the changes the SECURE Act brings to the employee retirement planning.  We stand ready to help our clients comply with the provisions of the Act as well as take advantage of some of its new features.  Give us a call 678-439-6236 today or visit the Hall Benefits Law website to learn more.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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