The Long Term-Part Time Problem to Come

While everyone is talking about multiple employer plans as being changed by the SECURE Act, I think the biggest change that will affect 401(k) plan sponsors on day to day basis is the mandate that long term, part-time employees must be made eligible for the deferral portion of the plan after 3 consecutive years of completed 500 hours of service.

Thankfully, plan sponsors don’t have to start counting until 2021. The problem is getting them to understand they have to monitor these employees and consider whether part-timers should also be eligible for profit-sharing contributions. If not, then they will have two different eligibility requirements. I predict in the end, that many plan sponsors and third-party administrators will take far too long to get used to this new rule when it starts to count in 2024 (after 3 years of 500 hours of service). That means a lot of compliance errors and possible makeup QNEC contributions of it’s caught too late.

In the end, let’s let plan sponsors know what will happen and develop a process to track it and properly notify the employees that may get to achieve this new liberal deferral eligibility requirements.

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