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SECURE Act: Changes to 401(k) Plan Eligibility and Vesting for Part-Time Employees

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 contained the most significant legislative changes to the private-sector retirement system in decades. One of the SECURE Act’s provisions changes the 401(k) plan eligibility requirements for part-time employees.

Related Read: What You Need to Know About the SECURE Act

Understanding the rule

Previously, part-time employees could be excluded from participating in their employer’s 401(k) plan if they did not work 1,000 hours in a 12-month period. However, effective with plan years beginning after December 31, 2020, the SECURE Act requires employers to include long-term, part-time employees as eligible participants in 401(k) plans, except in the case of employees under a collectively-bargained plan. Under the SECURE Act, part-time employees will be eligible to participate if they have completed at least 500 hours of service each year for three consecutive years and are at least 21 years of age by the last day of the same three-year period.

For eligibility purposes, 12-month periods beginning before January 1, 2021 are not taken into account. Therefore, for a calendar year plan, if a part-time employee meets the above requirements for 2021, 2022 and 2023, they will be eligible to enter the plan effective January 1, 2024.  

The SECURE Act provision for part-time employees only applies to elective deferrals. Employees who work less than 1,000 hours in a 12-month period can still be excluded from receiving employer matching contributions, safe harbor contributions and other employer contributions — until they meet the plan’s eligibility service requirement for these contributions. In addition, part-time employees who become eligible solely under the SECURE Act provision are excluded from the annual non-discrimination and top-heavy testing of the plan.

Finally, this new provision for part-time employees does not apply to 403(b) plans and 457(b) plans, which have their own eligibility requirements.

Related Read: SECURE Act 101: New Law Changes Plan Policies, Creates Design Options

Changes to vesting service

As a general rule, an employee who has completed a 12-month period with at least 1,000 hours worked is credited with one year of vesting service. The SECURE Act states that part-time employees who become eligible to make elective deferrals solely due to the new eligibility rule must be credited with one year of vesting service for each 12-month period during which they complete at least 500 hours of work.

Recordkeeping and the burden on Plan sponsors

Plan sponsors will need to track part-time employees’ hours to accurately determine eligibility for the plan. Plan sponsors should make sure to update their administrative systems and procedures to successfully track service time with respect to periods beginning on or after January 1, 2021 in order to comply with these new eligibility rules.

Under the SECURE Act, starting in 2021, a part-time employee needs to work 500 hours a year for three straight years in order to be eligible for the plan. However, recent IRS guidance (Notice 2020-68) stated that for those part-time employees who became eligible under the SECURE Act provision, all of the years that the employee worked 500 hours annually now count towards vesting (not just the years starting in 2021).

Plan sponsors may want to consider amending their plan document to provide for immediate eligibility for part-time employees solely for elective deferrals. This will reduce the burden on plan sponsors who find it difficult to track part-time employees’ hours in regards to the SECURE Act’s new eligibility and vesting rules.

Plan Amendments

The deadline for plan sponsors to amend their 401(k) plan documents to reflect the new SECURE Act provision is the last day of the plan year beginning on or after January 1, 2022. Thus, a calendar year plan must be amended by December 31, 2022.

If you have any questions, please contact Ken Kobiernicki or your ORBA advisor at 312.670.7444. Visit to learn more about our Employee Benefit Plans Services.

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