401(k) Plans to Admit Long-Term, Part-Time EmployeesAnchin AlertFebruary 12, 2021
Under current law, sponsors of 401(k) plans may exclude from eligibility those employees who are under age 21 or who do not work at least 1,000 hours in a plan year. The latter provision, known as the service requirement, is about to change.
Beginning in 2024, employees who have worked from 500 – 999 hours for three consecutive years, and who meet the plan’s age requirement by the end of the third year, must be admitted to the plan and become eligible to make elective salary deferrals. This change does not apply to collectively bargained plans.
What does this mean for your firm’s 401(k) plan?
- Beginning in 2021, plans will need to track and maintain service records annually in order to determine, beginning in 2024, whether part-time employees have met the 500 – 999 hour threshold for each of the three preceding years;
- The trustees of the plan should evaluate whether such employees will be eligible for matching contributions, if any, since it will be optional to offer this benefit. Note that if employer contributions are subject to a vesting requirement, each 500-hour year worked will count for vesting purposes;
- An increased “headcount” may cause a smaller plan to become large enough that it is required to submit financial statements to the US Department of Labor, after having been audited by an independent qualified public accountant.
Laws governing employee benefit plans are complex. For further information, please consult with your plan administrator; your Anchin Relationship Partner; or Deborah de Vries or Clarence Kehoe - Leaders of Anchin’s Compensation and Benefits Services Group.