Long-term, part-time workers will soon be able to join their employer’s retirement plan under provisions in the SECURE Act and SECURE 2.0 — a move that experts say could greatly expand plan access and increase retirement savings.
“Historically, you could exclude part-time employees” from employer-sponsored retirement plans, said Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute.
However, under the SECURE Act of 2019, employers must allow part-time workers to join their 401(k) plans starting in 2024 if the employee worked 1,000 hours in a one-year period, or 500 hours a year for three consecutive years.
SECURE 2.0, which Congress passed in December 2022, further reduces the three-year eligibility requirement to two years and expands the rules beyond 401(k) plans to include 403(b) plans that are subject to ERISA. Reducing the eligibility requirement from three years to two is set to begin in 2025.
“The biggest way people save for retirement is through an employment-based plan with (a) payroll reduction that allows that money to go directly into the plan before it gets to your paycheck,” Copeland said, adding that plan participation rates among part-time workers are generally “much lower” than that of full-time employees.
“One of the issues is access, meaning they’re not eligible, and then another is they’re typically lower paid, so they’re less likely to participate,” Copeland explained.
Data from the Bureau of Labor Statistics’ March 2021 National Compensation Survey found that while 74% of full-time private-sector workers had access to a workplace retirement plan, only 38% of part-time workers did. And while 57% of full-time workers participated in such a plan, only 18% of part-time workers did.
Mandating that employers allow long-term, part-time employees access to a workplace retirement plan could not only expand plan access but also allow young workers to start saving for retirement earlier, which could help their savings compound, he added.
In order to implement these provisions, the Treasury Department and IRS proposed regulation that was published in the Federal Register on Nov. 27. The proposal lays out the rules for plan sponsors so they can properly calculate part-time workers’ eligibility and design and administer their plans, among other technical guidance.