What to know (and do) about the 'confusing' SECURE 2.0 part-time employee provision

The passage of SECURE 2.0 has brought significant fanfare and a lot of excitement for many of us in the retirement industry. One of the main goals of the bill is to give more Americans greater access to retirement savings vehicles. I think most would say that many of the bill’s 92 separate provisions do just that; however, those provisions have multiple different effective dates, their fair share of wrinkles, and (as with any far-reaching piece of legislation) a number of questions that still need to be hammered out.

One key provision, entitled “Improving Coverage for Part-Time Workers,” is outlined in Section 125 of the bill. For plan sponsors and advisors to understand how this provision works and how it will affect them, I think it’s important to go back to SECURE 1.0. As we all remember, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed in December 2019, and it also included a section on providing plan eligibility to “long-term” part-time employees.

The SECURE 1.0 provision changed plan eligibility requirements that said part-time employees could be excluded from participating in their employer’s plan if they did not work 1,000 hours in a 12-month period. With the passage of SECURE 1.0, employers would not only have to provide plan access to workers logging at least 1,000 hours per year, but also to those “long-term, part-time” employees who worked at least 500 hours a year for three consecutive years, effective for plan years beginning after December 31, 2020.

SECURE 2.0 took that framework and updated it so that employers would need to provide plan access to long-term, part-time employees who had worked at least 500 hours for two consecutive years, effective for plan years beginning after December 31, 2024. For both acts, pre-2021 service of part-time employees is disregarded for vesting and eligibility purposes.

Related: SECURE 2.0 Act: 8 key provisions (and effective dates) for small businesses

This has led to some confusion since we have two separate timelines. Some, including myself, have asked themselves, “So when do we need to provide access to the plan?!” Based on the SECURE 1.0 timeline, employees who worked 500+ hours in 2021, 2022, and 2023 would need to be granted access in 2024. Going by SECURE 2.0’s schedule, however, employees who worked 500+ hours in 2023 and 2024 would need to be granted access to the plan in 2025. Because of this, I think existing plans should use the three-year, 2024 provisions from SECURE 1.0 as their guide for determining eligibility.

These disparate timelines highlight how important it is for plan sponsors to make sure they have processes in place to keep track of employees who will be impacted by SECURE 1.0 and 2.0. To do this, sponsors should work with their advisor, their recordkeeper, and their payroll provider so they can determine which employees are working 1,000 or more hours in any one year or 500+ hours in two or three years going back to 2021.

In fact, that’s why I’ve been harping on plan sponsors to make sure they are doing this since the passage of SECURE 1.0. It is also a good idea for plan advisors to reach out to plan sponsors to make sure this is being taken care of, since plan sponsors may need to flip the proverbial switch for long-term part-time employees in 2024.

Engaging with part-time employees

Not only should this time be used to ensure proper tracking of employees and their hours, but it also serves as a wonderful opportunity to start engaging with those employees. Human resources professionals, benefits professionals, plan sponsors, and plan advisors should be taking advantage of every chance they have to tell these employees, “You may be eligible to take part in our company’s retirement plan soon. We want to make sure you understand how it works so you get the most out of these benefits!”

Beyond that initial outreach, these new participants could also be educated on items such as how much they should be deferring into the plan, how they can invest their money, how the company match works, what sorts of advice or assistance is available through the plan’s recordkeeper and/or financial advisor, the long-term value of saving, tax benefits of a retirement plan, or simply the company’s culture around participant retirement saving.  These educational opportunities can be focused on part-time employees who will have access in the future, but it’s also a great time to re-educate or remind existing participants of the benefits available to them.

Another provision in SECURE 2.0 that may help motivate employees is one that allows for small incentives to be given to plan participants. Specifically, Section 113 permits employers to offer “de minimis financial incentives, not paid for with plan assets” to employees to help boost participation in retirement plans. This provision reminds me of the great lengths we as humans will go to get a five-dollar gift card to a local coffee shop. It’s amazing how those little “carrots” can encourage us to do so many things. Why not use this provision – which is effective now – to create a little buzz around plan education and future participation?

The long-term, part-time provision is just one of the many provisions contained within SECURE 2.0. It gives plan sponsors and plan advisors more to think about and more to implement, which can feel a little daunting. But with some planning and timely tracking, plan sponsors will be able to meet the new requirements and, ideally, use them to develop a larger, more engaged participant population.

Ben Rizzuto is Retirement Director at Janus Henderson Investors.