Time to Ensure Compliance for Part-Time 401(k) Participants

Tracking hours, time

Image credit: © Olivier Le Moal | Dreamstime.com

Atlanta-based independent employee benefits consulting firm Strategic Benefits Advisors, Inc. (SBA) recently issued guidance urging 401(k) plan sponsors to review their systems in advance of January 1, 2021, to ensure compliance with the SECURE Act.

The SECURE Act includes a mandatory requirement for plan sponsors to allow long-term, part-time employees to participate in 401(k) plans alongside full-time employees. That means starting January 1, 2021, plan sponsors must begin counting hours for part-time employees who work at least 500 hours a year.

Employees who work 500 hours for three consecutive years must be offered the opportunity to participate in their organization’s 401(k) plan beginning in 2024.

“Plan sponsors who don’t move fast will be hard-pressed to make necessary changes in just 60 days,” said SBA Founding Principal Andy Adams. “Changes involving payroll providers and HRIS systems are notoriously time-consuming, so a sense of urgency is called for to ensure effective processes for counting hours are in place by January 1.”

Historically, SBA notes that many retirement plan sponsors have only tracked hours for part-time employees who work 1,000 or more hours per year. Others have simplified timekeeping by crediting part-time employees a fixed number of hours for each day or pay period worked.

Regardless of their approach for tracking hours or using equivalencies, plan sponsors will need to coordinate with their recordkeepers, payroll providers and HR information system providers to make a plan for crediting part-time employees who work 500 hours or more.

Counting hours for part-time employees is not always straightforward. To relieve themselves of the administrative burden of counting hours, SBA says some plan sponsors may decide to extend eligibility to all part-time employees, regardless of hours worked.

“The calculus behind the decision to extend eligibility to every part-time employee will vary greatly from one plan sponsor to the next depending on the size and nature of its workforce and its available resources,” said Adams. “Plan sponsors will also need to decide whether newly eligible part-time employees should be allowed to share in employer contributions, as the SECURE Act leaves this decision entirely in employers’ hands.”

SBA recommends plan sponsors seek expert advice on how best to determine part-time employees’ hours. The SECURE Act represents the most significant changes to employer-sponsored retirement plans in over a decade.

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