Castle Rock PEP

Long-Term Part-Time Employees: SECURE 2.0

Long-Term Part-Time Employees, like restaurant employees, are ready for improved benefits.
Long-Term Part-Time Employees are in for some improved retirement savings as a result of The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0, now law, in the United States. The new legislation has expanded eligibility requirements for participation in employer-sponsored retirement plans, such as 401(k) plans, for part-time workers who have completed at least 500 hours of service annually for two consecutive years. Additionally, SECURE 2.0 introduces non-discrimination rules to ensure that part-time employees are treated fairly and provided the same retirement benefits as their full-time counterparts. To complicate matters more, both SECURE 1.0 (formally known as The SECURE Act of 2019) and 2.0 have different enrollment dates for these part time employees. Read on to discover more…

Key Provisions of SECURE: Employee Wins

Expanded Eligibility for Part-Time Workers: The legislation expands retirement plan eligibility to part-time employees who have completed at least 500 hours of service per year for two consecutive years and are at least 21. This is in contrast to SECURE 1.0 which required three years of service. Employers must now include these employees in their 401(k) plans, granting them the ability to contribute and benefit from employer matching contributions. This provision addresses the retirement savings gap that affects long-term, part-time employees previously excluded from employer-sponsored plans.
Eligibility Date: SECURE 2.0 and 1.0 have different enrollment dates for loyal part time employees. SECURE 2.0 will reward those newly eligible on January 1st, 2025, so long as they worked 500 hours or more within 2023 and 2024, while SECURE 1.0 will let them in on January 1st, 2024, if they were employed and working 500 hours or more in 2021, 2022, and 2023 since SECURE 1.0 had a three-year consecutive work record for each employee.
Vesting: SECURE 2.0 has provided clarity on the topic of vesting. As of the new legislation, 401(k) plans must count service on or after January 1st, 2021 for vesting purposes so long as the employee worked the 500 hours in said year. 403(b) plans will begin to count service for Long-Term Part-Time employees beginning in 2023 as 403(b)’s were not previously affected by SECURE 1.0’s vesting provisions.

Implications for Employers: Review existing policies

Employers must update their retirement plans to comply with the new provisions of SECURE 2.0, which may require plan administration, documentation, and communication changes. They should also review their workforce to identify long-term, part-time employees who may be eligible for plan participation under the new rules.
Employers may face increased costs due to additional employer contributions and administrative expenses. However, the benefits of offering retirement savings options to part-time employees include increased employee satisfaction, reduced turnover, and a more competitive benefits package to attract and retain talent.
To comply with SECURE 2.0, employers should take the following steps:
Employer Matching Contributions: While Long-Term Part-Time Employees are more easily accessing the elective deferral portion of their employer’s retirement plans with these changes, employers can still have restrictions to receive matching contributions in place. For example, if an employee regularly works 500 hours per year, but you insist on an employee working 1000 hours before the match begins, then an employer will not have to match the employee’s elective deferrals.
Automatic Enrollment: While not a SECURE 2.0 provision but actually from SECURE 1.0 in 2019, SECURE encourages employers to enroll employees in their retirement plans automatically. Employers who adopt automatic enrollment provisions can receive a tax credit of up to $500 per year for three years.
Review Plan Documents: Employers should review and update their existing plan documents to incorporate the new eligibility rules for long-term, part-time employees. This may involve working with legal counsel and plan administrators to ensure compliance with the new law.
Identify Eligible Employees: Employers must identify long-term, part-time employees who meet the new eligibility requirements of at least 500 hours of service per year for two consecutive years and are at least 21 years old. Employers should ensure their payroll and HR systems can track these employees and their service hours accurately.
Update Non-Discrimination Testing Procedures: Employers should work with their plan administrators to update their non-discrimination testing procedures to incorporate the new rules for long-term, part-time employees. This will help ensure their plans comply with the ADP and ACP tests especially for those with non-safe harbor plans.
Communicate Changes to Employees: Employers should communicate the new retirement savings options to their long-term, part-time employees, ensuring they understand their eligibility and the benefits of participating in the retirement plan.

Lasting Impressions

SECURE Act 2.0 represents a significant step in addressing the retirement savings gap for long-term, part-time employees in the United States. By expanding eligibility for employer-sponsored retirement plans the legislation aims to provide these employees with fair access to retirement benefits and promote financial security in their later years.
Employers play a crucial role in the successful implementation of SECURE 2.0. By proactively reviewing and updating their retirement plans, identifying eligible employees, and adjusting their contribution structures, employers can ensure compliance with the new legislation while reaping the benefits of a more satisfied and loyal workforce.
Furthermore, effective communication and education about the new retirement savings options will be essential in fostering employee engagement and participation in retirement plans. Employers can simplify plan administration by adopting automatic enrollment provisions, safe harbor rules, and providing lifetime income disclosures and reduce the risk of non-compliance.
Ultimately, the successful implementation of SECURE 2.0 relies on the collaborative efforts of employers, plan administrators, and employees. As the legislation takes effect, all stakeholders must work together to promote a more inclusive and equitable retirement savings landscape for the diverse American workforce.

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