Dear [CLIENT NAME]:
As of 2021, you are required to allow certain long-term part-time employees to participate in your 401(k) plan. Despite the requirement to include part-time employees in your 401(k) plan, you are not required to:
- Make employer contributions on behalf of these employees; or
- Include the part-time employees as part of the application of the top-heavy and nondiscrimination rules as well as the safe harbor contribution amounts.
What this means is that certain part-time employees must be allowed to make their own contributions to their 401(k), but you are not required to contribute on their behalf nor is your plan’s mandatory annual testing harmed if they choose to not participate.
A long-term part-time employee is defined as an employee who:
- Is not a member of a collective bargaining agreement;
- Has worked at least 500 hours for three consecutive 12-month periods (two consecutive 12-month periods starting January 1, 2025); and
- Is at least age 21 by the end of the three-consecutive-year period (two-year period starting in 2025).
Employers that offer 403(b) plans must abide by the same rules for long-term part-time employees starting January 1, 2025.
Please contact us if you would like to discuss these requirements further and whether offering optional employer contributions to your long-term part-time employees may be beneficial.
Sincerely,
Your tax professional
