Part-time workers get more 401(k) access in congressional proposal

June 28, 2021

Some part-time workers who stay on the job may get faster access to their company's 401(k) plan.

As part of retirement legislation pending in Congress, workers who book between 500 and 999 hours for two consecutive years would generally be eligible for their employer's plan. That would be a reduction from the current three-year requirement, a mandate enacted as part of the Secure Act of 2019.

Companies already must extend eligibility to part-timers who work at least 1,000 hours in a year, a rule that was in place before that 2019 legislation.

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Roughly 25.2 million workers are considered part-time, according to the latest data from the Bureau of Labor Statistics. They also tend to be among the workers who have no access to a retirement plan at work, which can be due in part to not meeting their employer's eligibility requirements.

"Employees who are part-time tend not to be long-service employees," said Robyn Credico, managing director of retirement at Willis Towers Watson, a business advisory firm.

"So say even if they were allowed to contribute [right away], if they leave a few months later, there are administrative issues … and there would be a lot of churn on the accounts," Credico said, explaining why part-timers generally are treated differently when it comes to 401(k) plans.

For this new group of part-timers — those working 500 to 999 hours annually — the three-year eligibility rule currently in place means not qualifying until at least 2024 due to 2021 being the first year that can count toward it. In other words, employers should be tracking hours of their part-timers now if they haven't been already.

It's worth noting that just because these workers will get access to their company's 401(k), employers that provide matches — contributions to your account — won't be required to extend that benefit to this group of long-time part-timers.

Part-time workers who don't participate in a 401(k) or don't expect to meet eligibility requirements can always open an individual retirement account, or IRA. Those accounts let you contribute up to $6,000 a year ($7,000 for individuals age 50 or older).

If you work part-time and receive a 1099 tax form from your company, you are an independent contractor and not covered by the part-time worker provision.

Contractors essentially are self-employed and can set up their own retirement savings. That could range from different types of IRAs to a solo 401(k), depending on your income.

"To the extent that you can save, even if it's a little bit, you should do it," Credico said.