What you need to know about the SECURE Act for part-time and seasonal employees

Ensure your employee retirement plan complies with the SECURE Act

The SECURE Act (Setting Every Community Up for Retirement Enhancement) requires that part-time and seasonal employees be eligible to contribute to their employer-sponsored 401(k) plan. Depending on which plan design option the employer chooses, part-time and seasonal employees are eligible if they:

  • Work 1,000 hours in a year, or
  • Work 500 hours during 3 consecutive years

Part-time and seasonal employees are eligible to receive employer contributions and/or be included in the actual deferral percentage (ADP), coverage, and top-heavy compensation testing at the employer’s option. Employers can choose the option that gives them the best result.

First, the good news

Employees can easily save for retirement and plan for a secure future. Employers benefit through recruitment and retention of quality employees.

Now, the not so good news

The requirement increases plan sponsor and employer administrative responsibilities by requiring:

  • Tracking and monitoring of hours worked and employment duration for each part-time and seasonal employee to determine eligibility. It may be necessary to track the information in-house if the payroll provider does not, or if the payroll provider is changed and the new provider does not have historical data. The Third Party Administrator (TPA) should understand eligibility requirements and receive the necessary data to monitor eligibility. It should be clear who is responsible for these requirements.
    • Employer Options:
        • Allow all part-time and seasonal employees to contribute to the plan.
        • Adopt eligibility rules and administer.
  • Administering vesting rules if part-time and seasonal employees are eligible for employer contributions. Depending on the rules and plan design, this could get very complicated.
    • Employer Options:
        • Do not include part-time and seasonal employees in employer contributions.
        • Make vesting rules less complex.
  • Managing small balances and missing participants will likely require more effort because part-time and seasonal employees typically have a higher turnover rate.
    • Employer Options:
        • Continue managing the accounts and require immediate cash out below a certain balance or automatic rollover.
        • Make sure there is a good process in place for consistent and accurate administration. There are firms that offer lost participant tracking as well.

The solution

Partner with Value Point Associates (VPA). Employers who have established their 401(k) plans with VPA don’t have to deal with these administrative hassles!  More employees get access to the 401(k), employers gain the recruitment and retention advantages, and VPA and the providers handle the administration once the employer chooses the plan design options.

If you have questions about the SECURE Act and your 401(k) plan, contact us.