IRS Releases Proposed Rule Affecting 401(k) Plans for Long-Term, Part-Time Employees

On November 27, 2023, the Internal Revenue Service (IRS) published proposed amendments to the rules applicable to plans that include cash or deferred arrangements (CODAs) under Internal Revenue Code section 401(k) with respect to long-term, part-time employees. The proposed rule, which reflects statutory changes made by the SECURE Act and the SECURE 2.0 Act, would require a qualified CODA to permit participation by certain employees even if they do not have at least 1,000 hours of service in a 12-month period. If adopted, the proposed rule would apply to plan years that begin on or after January 1, 2024.

IRS has certified that the proposed rule will not have a significant economic impact on a substantial number of small entities. In its certification, the agency asserts that recordkeeping, administrative, and other costs resulting from the participation of long-term, part-time employees in 401(k) plans sponsored by small entities are not expected to be significant. IRS requests comments on the rule and its certification. Advocacy encourages small firms to provide detailed information on the direct cost implications of the rule and whether there are any regulatory alternatives that would minimize the impact on small entities.

Written comments and requests to speak at a public hearing on the proposed rule are due by January 26, 2024. The public hearing is scheduled for March 15, 2024.