The ink on the SECURE Act of 2019 - passed very late in 2019 - was barely dry when Covid hit. Soon we were talking about the CARES Act of 2020 when we had just started talking about the SECURE Act. Most people have forgotten about it and it was very significant legislation!
The SECURE Act said that plans could no longer exclude long term part-time employees that did not complete at least 1,000 hours. If employees complete at least 500 hours of service in each of three consecutive plan years beginning January 1, 2021 they could make elective deferrals. (Employers, however, do not have to make contributions for these long term part-time employees.)
That means that either employers must relax their plan rules and allow long term part-time employees to contribute regardless of the number of hours, or they will need to track hours of all part-time employees every year so they know which ones have completed 500 hours for three consecutive years.
Plan sponsors should work with their Administrator and check the 401(k) plan design and any changes needed to comply with the long term part-time eligibility requirements of the SECURE Act, including establishing a mechanism for counting hours of service for long term part-time employees, if necessary.
Determine whether records are available, if necessary, for long term part-time employees. Consider whether expanding 401(k) plan eligibility beyond the minimum long term part-time requirements is a better option given the complexity of administering the long term part-time requirements.
Another SECURE Act consideration in 2021 is qualified birth and adoption distributions.
The Secure Act allows participants to access their purposes of offsetting expenses relating to qualified births or adoptions. These distributions are exempt from the 10% additional tax penalty normally applied to early withdrawals. Up to $5,000 for each child born or adopted and
must be requested within one year of the qualifying birth or finalization of a legal adoption. In addition, a participant can later recontribute a qualified birth and adoption distribution back to the plan.
Plan sponsors should also talk to their record-keeper and administrator about implementing this change. The procedure for requesting and tracking a qualified birth and adoption distribution must be established.
Of course, reputable record-keepers and administrators are already in the process of working on all SECURE Act rules and plan sponsors should be proactive and reach out to them right away.