Important SECURE Act Retirement Bill Changes Coming in 2021
The SECURE Act retirement bill went into effect in January 2020 with the intention of helping more Americans have greater access to retirement savings and avoid running out of money during retirement.¹
Most of the changes under the SECURE Act retirement bill went into effect in 2020 – including changes to the required minimum distribution (RMD) rules for participants and beneficiaries and increased tax credits for small businesses that offer retirement plans to employees.
[Check out our guide to understand how the SECURE Act may impact your retirement.]
However, there is one provision which aims to help people have greater access to retirement savings that is set to go into effect January 1, 2021…
Part-time workers who qualify may participate in 401(k) retirement plans.
Part-Time Employee Eligibility for 401(k) Plans
The LIMRA Secure Retirement Institute conducted a survey of recent and pre-retirees ages 55-71 who plan to retire or have retired in the past 2 years.
The 2019 report showed that 1 in 5 people continue to work in retirement. Specifically:
- 37% of pre-retirees said they plan to work part-time in retirement, and 17% expect to reduce their hours before they fully stop working.
- 19% of retirees are working part-time, and 17% have reduced their working hours.²
Whether it’s because people need to work due to lack of savings or because they simply enjoy working, the SECURE Act retirement bill changes may greatly benefit part-time workers in retirement.
Until now, part-time workers who worked under 1,000 hours per year were mostly ineligible from participating in their employers’ 401(k) plans.
The SECURE Act retirement bill changes this, and the new provision goes into effect January 1, 2021.
Here’s who may qualify to participate in their employers’ 401(k) plans:
- Part-time employees who have worked one full year with 1,000 hours clocked during one 12-month period.
- Long-term, part-time workers who have worked at least 500 hours per year for at least 3 consecutive years and are at least age 21 by the last day of the 3 consecutive year period.
There are a few caveats:
- When determining whether an employee has worked at least 500 hours per year in 3 consecutive years, 401(k) plans are not required to take into account hours of service in plan years beginning before January 1, 2021. Plan sponsors are required to start tracking hours starting in 2021, and are not required to permit qualifying long-term, part-time employees to make deferrals before the 401(k) plan years starting in 2024.
- The new rule does not apply to collectively bargained employees.
If you are a part-time employee and aren’t sure if you qualify for a 401(k), we recommend reaching out to Human Resources.
Do what you can now to educate yourself so if and when you are eligible, you can make the best decisions for your financial future.
[Related Read: 6 Questions to Ask Before Signing Up for a 401(k) Plan]
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Sources:
- https://www.congress.gov/bill/116th-congress/house-bill/1994
- https://www.limra.com/en/newsroom/industry-trends/2019/transitioning-to-retirement-limra-sri-finds-1-in-5-continue-to-work-in-retirement/
