The SECURE 2.0 Act Changes - Part I

The SECURE 2.0 Act passed in 2022 and made several changes to retirement plans that encourage taxpayers to contribute to their retirement. Various parts of the Act have been rolling out since it passed. Starting January 1, 2025, long-term part-time employees are eligible to participate in a 401(k) plan. They are eligible to contribute 401(k) deferrals but not receive employer contributions. Below is an overview of the key rules:

1. Eligibility for Part-Time Employees

Under the SECURE 2.0 Act, a long-term part-time employee is defined as an employee who:

• Works at least 500 hours per year for two consecutive years (starting in 2023).
• After meeting this requirement, the employee must be offered the opportunity to participate in the employer's 401(k) plan, though the employer does not have to provide a matching contribution or other benefits unless specified in the plan.

2. Vesting and Contributions

While part-time employees are eligible to participate in the 401(k) plan after meeting the 500-hour, 2-year threshold, there are some nuances:

• Employer contributions: If the employer decides to make contributions (e.g., profit sharing or a match), they must follow the general rules for employee eligibility, which may be subject to vesting schedules.
• Employee contributions: Once the employee is eligible, they can make elective deferrals into the 401(k) just like full-time employees. However, employers have the discretion to exclude part-time employees from some plan benefits, such as employer matching or profit-sharing contributions, depending on the plan’s design.

This isn’t the only big change coming on January 1, 2025, as a result of the SECURE 2.0 Act. Next week we will cover how catch-up contributions are changing. Stay tuned!