Are you Ready for 401(K) Plan Changes Under the SECURE Act?

Here’s a Look at the New Long-Term Part-Time Employees Rules

When signed into law in December 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act represented the first major legislative reform to the retirement landscape in more than a decade. The new law was designed to help more Americans save for the future by making several changes to qualified retirement plans, most notably by expanding access. As eligibility dates approach, it's important to ensure compliance with the new legislation to avoid operational errors and additional work down the road.

Under the SECURE Act, employers that sponsor a 401(k) plan must allow certain long-term, part-time employees to make salary deferral contributions to their plan. Under the new law, employees who work 500 or more hours for three consecutive years must be allowed to defer. Years are based on the eligibility computation periods defined by the plan, and employees will enter the plan according to the plan's entry dates. Tracking for determination of eligibility began in 2021, which means employees within this group will not become eligible until at least 2024, regardless of years worked before 2021. Employees within this group must still meet any age requirements imposed by their plan.

This new rule applies to all 401(k) plans, with the exception of collectively bargained plans. If the plan's current eligibility provisions already allow employees in this group to participate, then no changes are needed. It is crucial that 401(k) plan sponsors accurately track hours for their part-time employees to avoid having to make corrective contributions to the plan for these employees. Plans will need to be amended for the SECURE Act by the last day of the plan year beginning in 2022.

Employees who enter the plan under these new provisions are excluded from the plan's nondiscrimination testing, top-heavy minimum contributions, and safe harbor contributions. Eligibility conditions for any employer contributions will still apply. Unless further guidance is issued to the contrary, these participants are included in the participant count which could result in small plans becoming large plans subject to the independent audit requirement.

It is no secret that the government has endeavored for years to increase participation in workplace retirement plans, specifically for lower-income workers. It remains to be seen if part-time employees will take advantage of this provision, especially since they generally will not be eligible for employer matching or nonelective contributions.

On March 29, 2022, the House overwhelmingly passed SECURE Act 2.0, with the goal of increasing Americans’ access to retirement funds. The Senate Finance Committee is targeting the end of June 2022 for a markup of bipartisan retirement legislation. CBIZ is keeping an eye on this development and will provide an update once the final legislation is passed.

For assistance or questions related to the SECURE Act or any other retirement plan issues, please contact Diane Caron at 617.761.0539 or

Published on June 14, 2022