skip to main content
X

SECURE ACT ALLOWS PART-TIME EMPLOYEES TO MAKE WAGE DEFERRALS

SECURE ACT ALLOWS PART-TIME EMPLOYEES TO MAKE WAGE DEFERRALS

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was enacted to expand availability of retirement participation and benefits to US employees. Provisions to enhance tax credits for small employers to set up qualified retirement plans, getting rid of the age limitation on the ability to make IRA contributions and the elimination of the “stretch” IRA were a few of the main directives of the SECURE Act. One additional provision related to changing the treatment of part-time workers to allow them to make salary/wage deferrals if they met an hours and service requirement.

The part-time worker provision starts January 1, 2021, and requires all employers with 401(k) plans to now track the hours of their part-time workers. Once an employee works at least 500 hours for three consecutive years, they must be allowed to elect to make salary/wage deferrals. The only exception to this rule is collectively bargained employees. Employers are still permitted to impose age requirements on these workers and are not required to make employer contributions to these individuals. The part-time employees are not considered for top-heavy or non-discrimination testing either. However, the IRS issued guidance under Notice 2020-68 that requires an employer to track years of service prior to January 1, 2021. The reason for this is to provide credited years of service for vesting purposes where they met the “at least 500-hour rule” (will only apply to future employer contributions made to these employees). This would include tracking years when an employee was under the age requirement.

Plan sponsors and their third-party administrators will need to make sure to update their 401(k) plans to include this new provision of the SECURE Act. Sponsors may also need to coordinate with their payroll service providers to look back at prior years of service and hour tracking for their part-time employees going forward. The hope is that this feature, along with the numerous other provisions of the SECURE Act, will provide opportunities for younger workers and other part-time workers to start on the road to retirement planning.

 

HAVE A QUESTION?

Please complete this form to hear from one of our seasoned tax professionals

 

Hide Firm Disclaimer

©2020 UHY LLP. ALL RIGHTS RESERVED.

UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of "UHY Advisors." UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms. UHY LLP and UHY Advisors, Inc. are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. "UHY" is the brand name for the UHY international network. Any services described herein are provided by UHY LLP and/or UHY Advisors (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.

On this website, (i) the term "our firm", "we" and terms of similar import, denote the alternative practice structure conducted by UHY LLP and UHY Advisors, Inc. and its subsidiary entities, and (ii) the term "UHYI" denotes the UHY international network, in each case as more fully described in the preceding paragraph.