Long-term part-time Employees
As a general rule, a plan may not require more than one year of service as a condition of becoming a participant in the plan. However, this condition changed as a result of the SECURE Act 2.0.
Section 112 of the SECURE Act amends IRC §410(a) by adding a new maximum service requirement for certain long-term part-time employees. This change is effective for plan years beginning January 1, 2024 and primarily impacts plans that have historically relied on more restrictive, i.e. statutory, eligibility requirements.
The purpose of this change is to expand coverage to more employees who have historically been excluded from their employer's plan. The new maximum service requirement only applies to elective deferrals in a 401(k) plan. The change does not impact non-discrimination testing, or IRC 401(a)(4) if the plan includes a profit sharing component, unless by design the plan's service requirement was more liberable and did not impose an hours of service requirement.
Under the new service requirement, an employee satisfies the service condition if during 3 consecutive 12 month periods the employee is credited with at least 500 hours for each period. This employee is then considered a "long-term part-time employee".
Any age and entry date provisions as defined in the plan document still apply.