Broker Check

The Perils of Part Time

Linda Visconti, QKA 

Retirement Plan Administrator

I’m sure we’ve all at one time or another had a part time job. Either as a kid working through school, or as an adult working toward a specific goal. I’ve had lots of part time jobs, and the one thing they had in common was the only benefit you were entitled to is a paycheck, no vacation time, medical, dental, etc. (Well, I did have another benefit when I worked in a small bakery. I got to take home any leftover pastries on Sunday evening since the bakery was closed Monday!)

As part of the SECURE Act, our legislature is taking retirement readiness seriously enough that they have now opened plans to ‘permanent part time employees’. Beginning with the plan year 1/1/2021, long-term part-time employees with more than 500 hours in three consecutive years can be eligible to defer into the plan*. You, as the plan sponsor, do not have to make them eligible for any other source of employer contributions. But, if you decide you would like to include your permanent part time employees in the discretionary Profit Sharing contribution, their funds would still be subject to the same vesting schedule. Updated guidance has clarified that ALL years of service, even prior to 2021 must be considered for determining a part-time employee’s vesting in any employer discretionary contribution.

Per the regulation, an employee who has worked at least 500 hours for three consecutive years (tracking period starts after 12/31/2020) can make elective deferrals. While plan sponsors do not have to allow long-term part-time employees to defer until 2024, tracking of their hours begins this year (2021).

Your plan design may include an age requirement, typically age 21 or over, and this still applies to the part-time employee.

If you have previously been supplying complete census for all of your employees including exact hours for those working under 1000 hours in a year, we can help you in determining who would enter for deferrals, and if you are allowing part time employees to receive discretionary employer contributions, what their vesting would be in that source. For those who have inadvertently left off part time employees from the census provided, we may be reaching out for assistance in determining the hours worked in previous years.

This is one more reminder that the census you provide should be complete and list everyone you issued a paycheck to during the year. Always include their total hours and total compensation. Best practice is to include everyone on your year-end payroll report.

It is unlikely that we will see a lot of part time employees taking advantage of deferring into the plan, however, you must allow each person to make that decision on their own.

We can help you with educating your employees about this and any other of the provisions in your plan. If you have any questions about how this part of the SECURE Act will affect your plan, please give us a call!

*Long-term part-time (LTPT) employees must receive a year of vesting credit for any vesting period which he or she is credited for at least 500 hours of service. These special vesting rules only apply to employees who are eligible to participate “solely by reason” of LTPT requirements. Other employees will continue to be credited with a year of vesting only for years in which they completed at least 1,000 hours of service.