IRS Issues 403(b) guidance for part-time workers, under SECURE 2.0

SECURE 2.0 now allows more access to retirement plans for part-time employees, however, there has been some uncertainty for employers as to which employees exactly qualify. Now, the Department of the Treasury and the Internal Revenue Service issued guidance last week addressing long-term, part-time employees in 403(b) retirement plans under the SECURE 2.0 Act, which applies to 403(b) plans beginning in 2025 for employees employed by colleges and universities, charities and public schools.

Per a SECURE 2.0 provision, part-time employees’ eligibility to participate in a company’s retirement plan has been moved ahead from three years to two years, and the requirement for hours worked per year has been decreased from 1,000 to 500 hours a year. Employees who worked at least 500 hours a year for two consecutive years are eligible for a retirement plan, effective for plan years beginning after December 31, 2024.

IRS’ new 11-page notice includes a question-and-answer section on the application of the nondiscrimination rules for 403(b) plans with respect to long-term, part-time employees, including application of the rules to permitted exclusions from participation for part-time employees and student employees.

The notice also includes rules to exclude certain part-time employees, as well as student employees: “Certain categories of employees may be excluded from making elective deferrals despite the universal availability requirement, including … (student employees) and employees who normally work less than 20 hours per week (part-time employees).”

Related: What to know (and do) about the ‘confusing’ SECURE 2.0 part-time employee provision

The notice informs employers that the Treasury Department and the IRS plan to issue additional guidance with respect to the part-time employee provision in the SECURE 2.0 Act, including proposed regulations with respect to the rules in the new notice.

The notice also announces that the final regulation the Treasury Department and the IRS plan to issue for 401(k) plans on long-term, part-time employees will apply “no earlier than to plan years beginning on or after Jan. 1, 2026,” according to the new rules. A proposed regulation related to the rules for long-term, part-time employees in 401(k) plans was issued on Nov. 27, 2023.

The Treasury Department and the IRS welcome public comments on this notice on or before Dec. 20, 2024 at regulations.gov (include reference to Notice 2024-73).