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Compliance February 10, 2025
What to Know About Part-Time Employee Eligibility for Retirement Plans
Effective January 1, the SECURE 2.0 Act makes part-time employees who have met service criteria eligible for employer-sponsored retirement plans.
Reported by Natalie Lin
Art by Davide Comai
The SECURE 2.0 Act of 2022 has added another set of administrative changes to plans, ushering in significant changes to the eligibility criteria for long-term, part-time employees to participate in employer-sponsored 401(k) and 403(b) retirement plans.
Laurie Lombardo, head of product in the wealth solutions group at Voya Financial, says the key change is that long-term, part-time employees who are at least 21 years old and have at least one year of service working at least 1,000 hours or at least two consecutive years of service working at least 500 hours will now be eligible to participate in a retirement plan.
Previously, many plans excluded part-time employees altogether, she says. SECURE 2.0’s requirement took effect on January 1, meaning eligible part-time workers hired on or after January 1, 2023, must be offered the chance to make elective contributions into the plan. This was a reduction from the three-year requirement created by the law’s predecessor, the Setting Every Community Up for Retirement Enhancement Act of 2019.
According to Lombardo, employers now need to assess their part-time workforce to determine eligibility. Employers have a new administrative requirement, she explained. While some may opt for the minimum compliance approach, others might decide to make part-time employees immediately eligible, which could reduce the administrative burden.
Role of Advisers in Implementation
Retirement plan advisers will likely play a key role in supporting employers through this transition.
“Advisers are trusted contacts for plan sponsors,” says Lombardo. “They can help them understand the new rules, administrative options and assist in guiding newly eligible participants through enrollment and investing.”
Advisers may also face the challenge of helping sponsors educate employees who are new to retirement plans. Offering webinars, digital tools and one-on-one meetings can bridge knowledge gaps and encourage participation and engagement.
For small businesses, the SECURE 2.0 Act adds complexity. While it has not been met with resistance, many business owners have questions about compliance.
“Small business owners know their business; they don’t know the regulatory ins and outs,” says Lombardo. Advisers and recordkeepers will be crucial in ensuring small businesses navigate these changes successfully.
Preparing for Increased Participation
Advisers should also help sponsors anticipate a potential influx of participants with smaller initial balances, recommends Lombardo. Advisers can evaluate investment options and provide education for employees new to retirement savings.
“In general, [expanded eligibility] is a good thing,” Lombardo says. “It does open access, and that is one of the best benefits of the SECURE 2.0 Act.”
As advisers and employers prepare for the changes, collaboration and clear communication will be critical to observing the expanded eligibility requirements and enrolling newly eligible workers.
