“We sponsor an Employee Retirement Income Security Act (ERISA) 403(b) plan and recently read about the new SECURE Act rules for long-service, part-time employees. Will they apply to our plan?”
Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:
No. For those who are not aware, beginning in 2024, 401(k) plans will be required to allow long-term part-time employees who work three consecutive years of between 500 and 999 hours per year the right to make elective deferrals to a 401(k) plan. Employers are not required to count hours in eligibility periods for this purpose (generally, plan years) beginning prior to January 1, 2021. The present rules regarding employer contributions will be unchanged; this new rule applies only to elective deferrals.
However, this new elective deferral rule does not apply to 403(b) plans (or governmental 457(b) plans, for that matter). As you may be aware, 403(b) plans already have what is called a “universal availability” rule, which means that you generally must allow ALL employees the right to make elective deferrals to your 403(b) plan, with limited exceptions. Now, one of those exceptions is for employees who “normally work less than 20 hours per week.” However, as a practical matter, this exclusion is extremely difficult to administer, so much so that the IRS had to take the unusual step of issuing corrective relief to plan sponsors who were administering the provision improperly. Thus, most plan sponsors allow all part-time employees the right to make elective deferrals to their 403(b) plans.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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