The SECURE 2.0 Act was signed into law in December of 2022 as part of a huge, year-end federal spending bill from Congress. The Act follows up on the Secure Act of 2019 and continues with the objective of broadening the appeal of workplace retirement plans.
Ultimately, SECURE 2.0 is aimed at providing employers with opportunities to expand plan coverage and simplify plan rules and administration. Importantly for employees, the Act also offers more opportunities to help individuals save more for retirement and plan for a financially secure future.
The SECURE 2.0 Act of 2022 includes more than 90 provisions. The provisions have effective dates running from the date of enactment, which was back in 2022, all the way through 2026. The Internal Revenue Service (IRS) and U.S. Department of Labor (DOL) have already begun issuing regulatory guidance on how some of the provisions should be implemented, but we anticipate more guidance in the future.
One piece of guidance from the IRS, among other things, extended an already generous remedial amendment period included in SECURE 2.0 by one year. This means that most plan sponsors will not need to adopt required plan amendments until the end of the 2026 plan year.
Plans will need to be operated in good-faith compliance with the rules in the meantime, and if a plan sponsor wants to adopt any discretionary amendment (i.e., those that are allowed, but not required under SECURE 2.0), they will have to adopt an amendment by the end of the plan year in which the amendment is first effective.
This is not a comprehensive discussion of all the provisions that are effective in 2024, but instead focuses on one of the more complicated provisions that impacts retirement plan sponsors and the way a plan is operated. This is a mandatory provision that plan sponsors want to begin preparing for in 2024, which requires coverage of part-time workers.
A provision that’s been getting a lot of attention since the SECURE Act of 2019 affects long-term part-time workers. Broadly speaking, this provision ensures that part-time employees can have access to retirement plans.
Prior to the enactment of the SECURE Act of 2019 (“SECURE 1.0”), 401(k) plans were required to offer coverage to all employees age 21 and older who worked at least 1,000 hours in one year. The Act changed that rule for 401(k) plans to require that all employees who work at least 500 hours in three consecutive years be given the opportunity to make elective deferrals to the plan.
SECURE 2.0 broadened the long-term part-time provision by lowering the number of years for part-time workers to be eligible from three years to two years and expanded coverage to 403(b) plans subject to ERISA. SECURE 2.0 also allowed for a remedial period until 2025 to formally amend plan documents, but as was discussed above, this amendment date has been extended to the end of the 2026 plan year.
There is not a requirement to make employer contributions for part-time workers who’ve been designated in this provision. A matching or non-elective contribution is allowed, but it’s not required.
In summary, no formal plan amendments are needed now, but now is the time to consider whether to permit employer contributions to be made either matching or non-elective for long-term part-time workers—and if not, to document that decision.
For 401(k) plans, employers should have been counting hours for part-time employees from 2021 forward. This year (2024) is the third year, and part-time workers need to be offered the opportunity to enroll. If you’re a 403(b) plan sponsor, all you need to do is count hours for the people who work about 500 hours a year for 2023 and 2024, and to enroll them in plan year 2025.
