PLANADVISER - November/December 2020 - 11

even more complex, says David Swallow,
managing director of consultant relations
at TIAA. He explains that newly eligible
part-time employees may get vesting credit
for years prior to reaching eligibility.
Lisa A. Tavares, a benefits and executive
compensation partner at Venable LLP
in Washington, D.C., and a former attorney
with the IRS Office of Chief Counsel, says
plan sponsors have to give vesting credit
to newly eligible part-time employees for
all years, even prior to 2021. " They haven't
been
counting
hours
because
these
employees were excluded from the plan,
but now they'll have to go back and figure
out hours for prior years, " she says.
This is where the use of equivalencies
may be beneficial. Existing IRS rules
related to counting hours for eligibility-
as well as for vesting-allow plan sponsors
that do not track actual hours to use
several equivalency methods, Tavares
points out. In addition to 10 hours credited
for each day, plan sponsors may credit
employees with 45 hours for each week
worked, 95 hours for each semi-monthly
payroll period or 190 hours for each month
worked. " This is a more generous way to
calculate eligibility and vesting credit, so
some may not want to do it, but it's administratively
easier, " Tavares says.
Depending on the industry, with the
new SECURE Act eligibility requirement,
plan sponsors may end up including all
employees in their plan, Tavares says. But
whether to offer access to the 401(k) could
be a bigger issue for retail employers, " I'd
think employers in the retail
industry
would want to count hours for employees
because they may still have many people
who work less than 500 hours, " she says.
" So, I'd think they wouldn't want to just
include everyone. "
Small Account Balances
There will be other administrative challenges
to work through, Swallow says.
For industries where turnover of parttime
employees is an issue, there will be
more small account balances to deal with,
and the issue of missing participants
could increase. Swallow says plan sponsors
should redetermine what solution
for handling small balances-i.e., retain,
automatically cash out or automatically
roll over-would be best for their plan.
Plus, now is a good time to review their
process, if they have one, for finding
missing participants, he says.
Rick Skelly, a client service executive in
the retirement services division of Marsh
& McLennan Insurance Agency, says, if
small balances are forced out of the plan
in a timely manner after the holder separates
from service, missing participants
should not become a bigger issue.
According to Swallow,
the expansion
of 401(k)s to part-time workers underscores
the reality that defined contribution
(DC) plans will be the primary retirement
savings vehicle for employees to depend on
for many years to come. -Rebecca Moore
The Old Rules for Part-Time Workers
For plans that
Previously,
401(k) plans could
exclude parttime
employees
working fewer
than 1,000 hours
per year.
Source: IRS
A plan could
impose a waiting
period of up to
one year before
an individual
became eligible
to participate.
defined " years
of service "
based upon an
" hours-of-service "
definition, one
year meant
1,000 hours.
Better Access,
Less Disparity
Part-Timers' Work Week
<8 hours 13%
8 - 16 hours
>16 - 24 hours
>24 hours
25%
Workers Under Age 50
Who Have Over $50,000
In Retirement Savings
74%
34%
Full time
Part time
Source: 2020 PLANSPONSOR
Participant Survey
For Part-Timers
Who Still Don't
Qualify for the
401(k) ...
403(b) plans
already follow
a universal
availability rule, so
the new 500-hour
rule will not
affect them.
Currently, the limit on
annual contributions to
an individual retirement
account (IRA), pretax
or Roth, or a combination,
remains at $6,000
for 2021. The catch-up
contribution limit, which
is not subject to inflation
adjustments, remains at
$1,000. 2021 IRA contributions
may be made
until April 15, 2022.
Source: IRS
26%
36%
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PLANADVISER - November/December 2020

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