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What You Need to Know about SECURE Act Section 112

by | Jun 24, 2021 | Tax and Accounting Desk

SECURE Act Section 112 allows long-term, part-time employees special eligibility treatment.

If your retirement plan excludes part-time employees from participating, here are some things you need to know now.

The clock started as of 1/1/21 in terms of tracking part-time employee hours if they’re excluded from participating in your plan. We commonly see plans excluding part-time, seasonal, interns, and more from participating in plans, and with this new legislation, you may consider amending your plan now by including them to avoid the administrative burden of tracking these hours. If these employees work at least 500 hours (up to 999 hours) in three (3) consecutive years, they may become eligible as of 1/1/24 – at the earliest; later if the consecutive years begin after 2021. Service prior to 2021 also counts toward meeting vesting requirements (see IRS Notice 2020-68). Any age requirements will still apply, and these rules do not apply to excluded employees covered by collective bargaining agreements.

You may have employees who are surprised to learn they’re eligible, or people you have to allow entrance into your plans you weren’t expecting if you have not acted on this yet. This could exceed the eligible employee threshold, which could result in an independent audit in conjunction with your annual 5500 report. We suggest reaching out to your payroll providers now or make necessary changes if you handle payroll administration in-house, to ensure these hours are being adequately tracked for any affected employees.

One thing to keep in mind is even if you choose to include these employees as participants in your plan, you can still choose to exclude them from employer match or profit sharing, which may reduce the administrative burden of tracking hours while still allowing you flexibility as the employer to reduce your financial obligation and provide a richer benefit to your full-time employees.

Another important factor to be aware of is once these requirements are met, these employees don’t fall back out of the plan if their hours fall below 500; they’ll remain in the plan once becoming eligible. Also, employers may elect to exclude these part-timers from their non-discrimination testing, so it’s a good idea to discuss this now with your service providers so you can assess the full impact to your plans. Employers will need to amend plans by the last day of the plan year beginning on or after 1/1/22 (12/31/22 for calendar year plans).

We’ll keep an eye out for more guidance on this and keep you posted as we see how various providers and plan sponsors are handling these changes. For more information on how we serve our clients’ employee benefit plans, visit our website: www.PKFTexas.com/BenefitPlanAudits.

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