Christina Barry, Commercial Services Associate | The SECURE Act, passed in December of 2019, provided many part-time workers the opportunity to participate in an employer retirement plan. Before the SECURE Act had been passed, employees who worked fewer than 1,000 hours in a plan year were typically not eligible to participate in an employer retirement plan; thus, excluding most part-time workers. Since the original SECURE Act was passed, legislators have expanded the coverage to include new provisions that have recently taken effect. Whether you own a business that hires part-time employees or you’re a part-time employee yourself, Bowman & Company LLP suggests familiarizing yourself with the latest developments that will impact 2025 retirement plans.
The SECURE Act expanded eligibility for employer retirement plans to include individuals who worked either 1,000 hours throughout the plan year OR had three consecutive years of employment under the same employer with at least 500 hours of service. So, if an employee logged 500 hours of service with the same employer in 2021, 2022 and 2023, they would be eligible in 2024 to participate in that employer’s retirement plan.
In December of 2022, the SECURE Act 2.0 was passed, which improved the coverage for part-time workers beyond what the SECURE Act of 2019 allowed. Effective for plan years beginning on or after January 1, 2025, the SECURE Act 2.0 provided that the vesting period would decrease from three consecutive years of employment to two consecutive years. For example, any employee who worked 500 hours in 2023 and 500 hours in 2024 would become eligible in 2025 to participate in the employer’s retirement plan.
There are a few important items to note. First, the SECURE Act of 2019 is still in effect, so an employee who does not work at least 1,000 hours in a plan year must work at least 500 hours in 2021, 2022 and 2023 to be eligible to participate in an employer retirement plan starting in 2024. The vesting period for the SECURE Act 2.0 did not begin until the 2023 plan year. A second item to note is that for both the SECURE Act and the SECURE Act 2.0, any hours worked by an employee pre-2021 do not count toward the three (original SECURE Act) or two (SECURE Act 2.0) year requirement; the vesting periods do not begin until 2021 for the original SECURE Act or 2023 for the SECURE Act 2.0. Finally, employees still must be 21 years old to be eligible to participate in an employer retirement plan; the Acts did not change the age requirement. The SECURE Act also addresses Required Minimum Distribution (RMD) changes and non-spouses inheriting IRA’s; more information on this can be found in this blog’s references below.
Bowman & Company LLP offers administrative & audit services for employee benefit plans. Our professionals have extensive experience in this field for all types of business entities & industries. For more information and/or business inquiries, visit our webpage for employee benefit plan audits.