SECURE Act Explained: Plan Eligibility for Long-Term Part-Time Employees

Author: Jefferson Baniqued / 22 Dec 2023 / Retirement Trends & News, Small Business 401k, State Mandated Retirement Plans

The retirement planning landscape has undergone transformative changes with the introduction of the SECURE Act in 2019 and the SECURE Act 2.0 in 2022. These legislative milestones have reshaped retirement plan eligibility, especially for long-term part-time employees. For plan sponsors, understanding and adapting to these changes is essential for tailoring your company’s retirement solutions. This post aims to provide an insightful guide for plan sponsors navigating these new regulations, ensuring smooth transition and compliance.

Defining Long-Term Part-Time Employees:

Central to these changes is the redefined criteria for long-term part-time (LTPT) employees, a key group affected by the SECURE Act. Individuals, who have logged over 500 hours (around 12.5 weeks full-time) annually for three consecutive years, starting from January 1, 2021, are now eligible for retirement plan participation, marking a significant shift in eligibility criteria.

Flexibility and Impact of Updated LTPT Eligibility Criteria:

The SECURE Act’s modifications, effective from January 1, 2024, introduce not just new eligibility criteria for Long-Term Part-Time (LTPT) employees but also considerable flexibility. If they meet the plan eligibility criteria, LTPT employees can continue their participation in the company’s 401(k) plan even with fluctuating annual work hours, ensuring financial inclusivity and acknowledging the diverse contributions of all employees. However, it’s important to note that plans are not required to include LTPT employees in employer contributions, automatic enrollment, or the plan’s non-discrimination testing, including Top Heavy requirements. This distinction is crucial for understanding both the scope and the limitations of LTPT employees’ participation in these retirement plans.

Staying Ahead with SECURE Act 2.0:

In 2025, the SECURE Act 2.0 will further amend the eligibility requirement for LTPT employees, reducing it from three to two consecutive years. It’s crucial for plan sponsors to stay informed about these legislative changes and adapt their strategies accordingly to anticipate future shifts.

Effective Communication Strategies:

Plan sponsors are tasked with the crucial role of communicating SECURE Act updates to eligible long-term part-time employees. They must ensure these employees are informed about their new retirement plan eligibility and enrollment process before January 1st, 2024. While plan sponsors may coordinate with their plan providers for logistical support, the primary responsibility for clear and timely communication lies with them.

Ensuring Compliance Through Plan Document Updates:

Understanding the evolving landscape of the new LTPT rules is essential for maintaining compliance in the future. Currently, the industry is awaiting further technical guidance from the IRS regarding these requirements. While plan amendments for LTPT compliance have not yet begun, it’s important to operate in good faith with the anticipation of adapting your plan accordingly. Once the IRS approves the necessary amendments, leveraging the expertise of your plan provider will be key to ensure your documents are accurately updated and fully compliant with the new regulations. Staying informed and prepared will help mitigate potential issues and align your plan with the latest regulations when the time comes.

Preparing for the Change:

The inclusion of long-term part-time employees in retirement plans is a significant step towards financial security and inclusivity. As a plan sponsor, staying informed and adaptable to these evolving regulations is crucial. By adhering to the new eligibility criteria, engaging in effective communication, and being vigilant about legislative updates, you ensure that your retirement solutions are inclusive and compliant. This proactive approach not only aligns with current regulations but also promotes a culture of financial well-being among your employees.

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Need assistance with the SECURE Act’s retirement plan changes? Ubiquity Retirement + Savings offers expert solutions for small businesses. Whether converting an existing plan or setting up a new one, we’re here to guide you to the right choice. Contact us today for compliant and efficient retirement plan options tailored to your business needs.