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SECURE 2.0 Implementation Considerations for Long-Term Part-Time Employees

  As a result:

• Effective in 2024, 401(k) plans must allow long-term part-time employees to contribute to a 401(k) Plan.
   
• Effective in 2025, eligibility wait time for long-term part-time employees is shortened from three consecutive years to two years if the employee is at least 21 years of age (eligibility and vesting service prior to 2023 are excluded).
   

While this development is positive in terms of helping many more employees save for retirement and increasing retirement readiness for American workers, it also increases the administrative burden on plan sponsors.

This has been a recent talking point with plan sponsor clients for Chris Waldron, Retirement Consultant, from ABG member, Spectrum Pension Consultants. Following is an overview of the considerations Chris points out that are key in understanding the implementation and impact of this long-term part-time employee provision.

What Has Changed & How Employers Need To Prepare

Historically, in many industries with part-time workers and higher turnover, such as the restaurant industry, it was common practice by employers, with the administrative burden in mind, to exclude part-time employees from retirement plan programs. As greater focus has been placed on helping more American workers save for retirement, this exclusion is no longer the case, and plan sponsors should work with their service providers, including ABG, to review their employee records, plan design, and recordkeeping system capabilities to ensure readiness for these new rules. Importantly, plan sponsors need to keep up-to-date records of all part-time and full-time employees and share this data with their recordkeeper and payroll provider.

• For larger businesses with efficient employee data systems in place, this may be less of an administrative lift. Reports can be easily run that identify the long-term part-time employee population that now needs to be served by access to the companies’ retirement plan.
   
• For smaller businesses that make up a significant portion of the American economy, long-term part-time employee identification and the tracking of time worked and eligibility may not be as straightforward, particularly for regularly returning seasonal employees or company interns, if employment records are not as easily retrieved. There may be much more to organize before the January 1, 2024 implementation deadline.

A Proactive Approach Is Key

As Chris points out, what needs to happen is an enrollment offering for this now eligible long-term part-time employee segment.

• The reality is that unless there is a finite time established for an employee’s period of work in a company, many part-time employees may now be considered potential long-term part-time employees.
   
• Some plan sponsors may not fully understand this, and retroactively, there may be issues in future audits if this population has not been served via the offering of retirement plan participation.

Employers need to now work from the assumption that that employee, even if they just work for the summer, could potentially be a long-term part-time employee. They may not end up being a long-term part-time employee, but they have to be treated as if they might be. The burden is on the employer to keep accurate records and provide ready retirement plan access.

• Plan sponsors should evaluate whether changes are needed to their plan documents or administration to comply with this long-term part-time provision.
   
• In addition, some plans may now end up in the larger employer Form 5500 reporting category in 2024 or later due to the participation of this newly included employee segment. As a result, they may also need an independent plan audit for the first time.

Spectrum Is Here To Help

Coordinating with retirement plan providers such as Spectrum and payroll providers to keep accurate records and effectively implement this new provision will be key. Undoubtedly, because this is a significant change for plan sponsors and their long-term part-time employee base, there will be administrative issues to work through. Also, additional guidance from the Department of Labor and IRS is still needed to provide more details regarding implementing the long-term part-time employee rules as we move forward.

As Chris notes, “While this is a positive retirement savings development for many American workers, there will be administrative issues to work through. Having knowledgeable retirement plan providers that can help plan sponsors move forward effectively is key.”

Please contact your local Spectrum representative with any questions regarding this long-term part-time employee provision.