The SECURE Act and Part-Timers

It seems like a lifetime ago since President Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act into law. But Dec. 20 was just five months ago, and the dust is still settling. A recent blog entry takes a look at its effect on part-time employees.

 

In “Secure Act Deep-Dive: Inclusion of Part-Time Employees,” a May 27 entry in the Cammack Retirement “Insights” blog, Michael Webb notes that part of the SECURE Act’s expansion of retirement plan coverage is requiring 401(k) plans to permit long-term part-time employees—those who work between 500 and 999 hours per year, for three consecutive years—to make elective deferrals. He writes that this is “a positive step for employees,” but it also can pose retirement plan sponsors with significant administrative burdens.

The provision concerning long-term part-time employees applies to all 401(k) plans, Webb writes, except collectively bargained 401(k) plans. The same is not true, he notes, regarding 403(b) and 457(b) plans:

 

Plan sponsors already experienced difficulty in tracking hours under the pre-SECURE Act rules; performing that function under the SECURE Act can make it even more complicated, Webb says. And, he adds, outsourcing this function does not resolve the data issue this type of tracking involves.

 

Webb argues that concern over accurately tracking part-time hours is justified. First of all, he observes that while the rule will not take effect until 2024, service will need to be tracked starting in 2021 as it must entail due to the necessity of serving for three consecutive years in order to be eligible.

 

Webb suggests alternatives to tracking hours:

 

Webb also suggests that it is possible that equivalencies could be used, and that doing so would be as favorable as allowing all part-time employees to make elective deferrals.