SECURE Act Long-term Part-time Employees Q&As
Except in the case of collectively bargained plans, the SECURE Act will require employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one-year-of-service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes more than 500 hours of service. In the case of employees who are eligible solely by reason of the latter new rule, the employer may elect to exclude such employees from testing under the nondiscrimination and coverage rules, and from the application of the top-heavy rules.
Q1: Does the new long-term part-time provision affect 403(b) plans and the current 20-hours-a-week eligibility exclusion?
A1: The long-term part-time provision does not apply to 403(b) elective deferrals. 403(b) plans are already subject to the universal availability rule which was not changed.
Q2: Would age 21 for the new long-term, part-time eligibility count years of service prior to age 21? For example, would an employee starting at age 18 working for three years be eligible?
A2: The age 21 requirement still applies. The SECURE Act added a new maximum hours of service requirement.
Q3: What if the part-time employees are part of an excluded class?
A3: We think that you can exclude the long-term part-time employees if they fall within an excluded class that isn't based on service. For example, if the plan excludes employees in the Chicago office, then all employees in the Chicago office are excluded, even if some of them are long-term part-time employees—the same as the YOS rule.
Q4: What about if the employees are eligible for the plan now but in an excluded class (and nondiscrimination tests pass)?
A4: We think that you can exclude the long-term part-time employees if they fall within an excluded class that isn't based on service. For example, if the plan excludes employees in the Chicago office, then all employees in the Chicago office are excluded, even if some of them are long-term part-time employees. No different than the YOS rule.
Q5: Are long-term, part-time employees eligible for safe harbor nonelective contributions?
Q6: Can employers elect to count (for three consecutive year purposes) years prior to 2021 (employer being good guy).
A6: The statute provides that years prior to 2021 “shall not” be taken into account. A plan can, of course, provide for more liberal service requirements. The issue is what are the consequences. If you are more liberal, then arguably these people are not in the plan solely because of the new statutory requirement. So the special rules wouldn’t apply (i.e., they would be entitled to top-heavy minimum contributions, are counted in nondiscrimination testing (but you can use permissive disaggregation rules). The positive is that they wouldn’t be subject to the special vesting YOS for any employer contributions. But that’s a very strict interpretation; it’s likely the IRS would allow are more liberal application.
Q7: Does age 21 still apply or is it long-term part-time regardless of age?
A7: Age 21 still applies. All the law did was add a new maximum service requirement.
Q8: Are top-heavy minimum contributions to these long-term part-time employees?
A8: If the sole reason they are in the plan is because of the long-term part-time provision, then they do not need to receive the top-heavy minimum.
The topics addressed on this page are for information purposes only and should not be construed as specific tax or retirement plan advice. Individuals should consult a tax advisor or attorney for questions regarding specific tax or legal needs.