It's no secret that an employee's length of service is critical to setting up their 401(k) plan. More than that, the number of actual hours worked also counts towards establishing a worker's eligibility for promotion. As a mandatory internal procedure, the active hours keep employee data accurate and ensure compliance with workplace regulations.
Employers calculate hours of service, excluding any official holidays, paid vacation days, PTOs, medical leave. In regards to company-sponsored health care plans, it is typically required of employees to have more than 1,2000 hours of service to be eligible, after another 90-days waiting period. In most cases, employees need to complete a minimum of 1,000 hours of service in a 12-month period to gain access to health care programs, better insurance, and other benefits.
How do they calculate the total of hours worked, you ask? There are three main methods to calculate one’s cumulative hours of service: the elapsed time method, the actual hours method, and the equivalency method. However, the means don't matter as much as the added results. And here's why. As of 2019, the eligibility for 401(k) plans has undergone changes to cover a larger group of citizens. Prior to these modifications, part-time employees who had less than 1,000 official work hours couldn't even dream of being deemed eligible for a 401k before. Due to the new changes, the number of cumulative hours of service for part-time employees has been reduced to 500 hours in three consecutive years. The only other condition is for the employee to be over 21 years of age to qualify. That is great news for recent graduates and college students who also work part-time.
What about the 1,000 hours eligibility? Is it no longer valid? It is. The new rules only give part-time employees a chance to be eligible, provided that they have been employed part-time for at least 500 hours in three consecutive years. The old rule of having 1,000 hours of service within a year to qualify for a 401k is still valid and applies to full-time workers. One person would need to be eligible on either of the options, depending on their employment type.
To all the young professionals on the job market, the Setting Every Community Up for Retirement Enhancement (SECURE) Act has made an important step to help you prepare for your future. The next move is yours. Use this chance to prepare for a stress-free retirement.