Now that 2024 has arrived, it brings with it new changes that significantly impact retirement plans, specifically for part-time employees who have been working for your organization for a long time. The SECURE Acts have ushered in modifications to retirement regulations, granting individuals in this category greater opportunities to participate in employer-sponsored retirement plans. If you’re not sure what a 401(k) for part-time employees means for your plan, join us as we discuss the key changes and rules under the SECURE Acts, the implications for plan sponsors, and guidance on how to adapt retirement plans to remain compliant.
Do You Know These Surprising 401(k) Facts? Check Out Our Informative Infographic!
Key Changes and Rules Under the SECURE Acts
Beginning this year, more part-time long-term employees can participate in employer-sponsored retirement plans. Previously, part-time employees who worked fewer than 1,000 hours in a year were often excluded from retirement plans. However, in 2024, the new rules established by the SECURE Act of 2019 state that individuals who have worked at least 500 hours per year for three consecutive years should be given the opportunity to save for retirement through their employer’s plan. Furthermore, in 2025, we will transition to two years and 500 hours, aligning with the rules provided by SECURE Act 2.0
Implications for Plan Sponsors
The changes brought about by the SECURE Acts have significant implications for plan sponsors as they navigate the landscape of retirement plans. Including part-time employees in retirement plans brings various advantages, including improved employee satisfaction, enhanced recruitment and retention efforts, and potential tax benefits. Let’s break down the implications20 for plan sponsors:
1. Managing Eligibility Criteria
With the inclusion of part-time employees in retirement plans, plan sponsors must carefully manage eligibility criteria. This includes reviewing and updating eligibility criteria to comply with new requirements and ensure a fair and consistent approach.
It is extremely important to note that prior “owner only” plans will transition to a standard 401(k) subject to ERISA even if no long-term part-time participant decides to contribute.
2. Communication Challenges
Effective communication is paramount when implementing any retirement plan changes. Plan sponsors must develop a communication strategy to educate both full-time and part-time employees about the changes and their eligibility for the retirement plan. Considering part-time employees may have fluctuating hours, clear communication becomes even more important.
Communication is a vital part of adapting to the new rules.
3. Financial Impact Assessment
Including part-time employees in retirement plans requires a thorough assessment of the financial impact. Plan sponsors need to evaluate the plan’s administration costs, employer contributions, and the potential impact on full-time employees. Understanding the cost implications and budgeting for these changes is crucial to the sustainability and financial feasibility of the retirement plan.
4. Compliance Measures
Remaining compliant with regulatory requirements is essential for plan sponsors. Nondiscrimination testing, reporting obligations, and other compliance measures must be consistently monitored and adhered to. Staying updated with the latest regulatory changes and ensuring compliance with rules is fundamental to avoiding penalties or legal implications that may arise.
5. Professional Guidance
Navigating the complexities of adapting retirement plans to include part-time employees requires expert guidance. Seeking assistance from experienced retirement plan professionals, such as California Pensions, provides invaluable support. They can help plan sponsors navigate eligibility criteria, communication challenges, financial assessments, compliance measures, and overall plan adaptation.
By addressing these implications proactively, plan sponsors adapt retirement plans to include part-time employees while promoting compliance and ensuring a fair and inclusive work environment.
Set Your Plan up for Success with California Pensions
The implementation of the SECURE Acts has opened new possibilities for part-time employees to participate in employer-sponsored retirement plans. When partnering with California Pensions, plan sponsors receive personalized assistance and guidance in navigating the complexities of adapting retirement plans for part-time employees while ensuring compliance. Secure your employees’ financial future by embracing the opportunity to create inclusive and comprehensive retirement plans. Contact California Pensions today for a free consultation and personalized assistance in adapting your retirement plan.
