CWF Logo


June 2021

New Eligibility Laws For 401(k) Plans for Part-Time Employees

The SECURE Act (December 2019) grants certain part-time employees the right to be eligible to participate in an employer’s 401(k) plan even though they have never met the 1000 hours of service requirement.

This new law applies to plan years beginning after December 31, 2020. That is, it applies to the 2021 plan year.

The law now requires that certain part-time employees (less than 1000 hours per year) must be able to participate in the 401(k) plan and make elective deferral contributions. All 401(k) plans must be amended accordingly.

A part-time employee who has worked at least 500 hours in three (3) consecutive years and has attained the age of 21 is eligible to participate in the 401(k) plan. The plan’s normal entry date rule would apply. The law does provide that an employer may disregard service prior to 2021. Thus, an employer may require that a part-time employee have 500 hours or more in 2021, 2022, and 2023 before becoming eligible to participate. Of course, an employer could adopt a less restrictive rule by considering years prior to 2021.

So, there may be employees who have been excluded in the past because they had never met the 1000 hour requirement who will now be eligible to participate in the 401(k) plan – either in 2023 or earlier.

This new rule does not require an employer to make a matching contribution or other contributions on behalf of these part-time employees. However, if an employer would make such contributions, then the plan requirement for having 1000 hours to gain a year of vesting service would be modified to be 500 hours. The IRS will be issuing additional guidance.