A New Rule Is Quietly Changing How 401(k)s Work for Part-Time Workers

Historically, many part-time workers have not been eligible to contribute to employer-sponsored 401(k) retirement plans. That means that, in the past, many Americans have not had the opportunity to invest and save for their futures in a 401(k). The SECURE 2.0 Act, which was passed in 2022, expanded eligibility for part-time workers.

Now, more part-time workers will be able to gain access to a 401(k) retirement plan, which can help them build long-term wealth. 

Here is more information about the SECURE 2.0 Act, the new policies for part-time workers, and what part-time workers can do to take advantage of this change.

Data shows that Americans are behind on retirement savings

A new report from the National Institute on Retirement Security found that Americans, on average, have $955 saved for retirement. This number combines Americans who have 401(k) plans with the 56 million workers who don't have access to employer-sponsored retirement plans. This shows how important it is to help part-time employees gain eligibility faster so they can start investing in their futures.

The goal of the SECURE 2.0 Act is to close this gap and expand access to 401(k) plans for more Americans, including part-time workers.

The old 401(k) rule for part-time workers

Previously, part-time workers had to work at least 500 hours per year for an employer for three consecutive years before they became eligible to contribute to a 401(k) plan. 

This high threshold meant that many part-time and seasonal workers couldn't access a 401(k) plan, especially if they frequently changed employers.

The new 401(k) rule for part-time workers

The SECURE 2.0 Act updated this requirement by shortening the work requirement to 500 hours with the same employer over two consecutive years, not three. 

This change allowed more workers to access 401(k) plans and start investing for retirement sooner. This is especially helpful for long-term, part-time employees who work in industries such as retail, health care, education, and hospitality. 

As an added bonus, these workers can invest one year earlier, which means their investments can start compounding sooner.

Employers are not required to match part-time employee contributions

Even though part-time employees can access 401(k)s sooner, the current policy does not require employers to match their contributions. 

So, while the SECURE 2.0 Act gave part-time employees access to 401(k) plans sooner, they may still not receive an employer match until they meet standard eligibility requirements, which typically include working full-time hours for an employer.

Employers are responsible for monitoring employee eligibility

Even though employers are not required to match contributions for part-time workers, they are responsible for monitoring their employees' eligibility for 401(k) plans. 

It is the employer's job to track employee hours and determine their eligibility. This adds administrative tasks for employers, which can be cumbersome and add compliance challenges. This is especially complex for businesses that typically work with part-time employees, such as those in health care, hospitality, and retail stores.

What employees can do if they think they're eligible for 401(k)s

If you believe that you're eligible for a 401(k) plan because you have met the requirements for working over 500 hours a year for two years consecutively with the same employer, make sure to notify your employer if they haven't notified you first. Your employer should be able to confirm your hours through their payroll system.

If you're able to enroll in a 401(k) plan, start contributing even if it's a small amount. If you're not eligible to enroll for some reason, consider alternate retirement account options, like an IRA. Ultimately, consistent, steady investing over the long term does add up.

Access to workplace 401(k)s improves investment outcomes

Research from AARP found that Americans are 15 times more likely to invest for their retirement years when they have access to a 401(k) plan. Additionally, if a workplace automatically enrolls its employees, Americans are 20 times more likely to save for retirement.

This data shows that when Americans have access to these tax-deferred retirement accounts, it can improve retirement outcomes. Now that fewer Americans have access to pension plans, it is their own responsibility to manage, monitor, and grow their retirement accounts. Both part-time and full-time employees who need help with retirement planning can consult a financial advisor.

Bottom line

All Americans deserve a stress-free retirement one day, and access to a 401(k) account can help achieve that goal. Under the SECURE 2.0 Act, it's now easier for part-time employees to qualify for 401(k) plans through their employers. 

If employees have questions about their eligibility or how to open a 401(k), they should consult their human resources department.

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