Do you have clients that are in for a rude awakening come 2023?
Let me explain. It seems the retirement industry has been relatively quiet on preparing businesses for SECURE Act eligibility changes. As of January 1, 2021 (for calendar year plans), the law expanding access to qualified plans for long-term, part-time employees went into effect. However, we are still awaiting guidance on implementing these changes from the IRS, and most plan document providers have not released interim amendments covering these changes. Depending on an upcoming vote in the Senate, changes will be implemented on either January 1, 2023 (SECURE Act 2.0) or January 1, 2024 (the original SECURE Act).
While further changes may come sooner with the recent congressional activity around SECURE Act 2.0, I will focus on the broad impact of the SECURE Act on eligibility. Have you been actively having these conversations with 401(k) plan clients? Here are a few questions that need to be posed:
What is this long-term, part-time eligibility change?
Historically, statutory maximums for an employee joining a 401(k) plan were as follows: age 21; one year with 1,000 hours of service; and entry to the plan within six months of meeting age and service requirements.
For companies with employees who consistently work fewer than 20 hours per week, experience frequent turnover or primarily perform seasonal work, that statutory maximum provided a way to keep administrative efforts and costs down.
Beginning in 2021,...
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