As the job market continues to evolve, plan sponsors must stay informed about changes in regulations affecting temporary workers' benefits eligibility. By understanding the implications of the SECURE Act and the DOL's ruling on independent contractors, plan sponsors can ensure compliance and provide valuable benefits to their temporary workforce.
In 2023, the job market underwent significant changes as it sought to recover from pandemic-related disruptions and grappled with the aftermath of the Great Resignation. In response to these challenges, many employers increasingly relied on temporary workers to adapt to the evolving landscape. The start of 2024 has brought significant changes in how temporary workers are classified and their eligibility for benefits, driven by the SECURE Act and the Department of Labor's (DOL) recent ruling on independent contractors. Here is a review of those changes impacting plan sponsors.
The Impact of the SECURE Act
The Setting Every Community Up for Retirement Enhancement (SECURE) Act has implications for temporary workers' eligibility for retirement benefits. The SECURE Act became law in 2019 and required employers to allow long-term part time (LTPT) workers to participate in certain retirement plans by 2024, LTPT workers include temporary, seasonal, or other workers who don't typically work 1,000 hours a year.[1]
An update to the SECURE Act, the SECURE Act 2.0, includes several provisions that may have implications on how plan sponsors handle benefits for their workers in 2024.[2] The SECURE Act 2.0 further modified the LTPT rule, loosening the requirements for LTPT workers to be eligible for certain benefits.[3] As of January 1, 2024, employers must permit LTPT workers to make deferral contributions to qualified retirement plans with cash or deferred arrangements if they are otherwise eligible for enrollment in retirement plans.[4] This change for LTPT workers deviates from previous eligibility criteria, which mandated that participants must be at least twenty-one years old and complete a 1,000-hour year-of-service before joining a 401(k) plan. Plan sponsors are required to make necessary changes to comply with the SECURE Act by December 31, 2025.
The SECURE Act 2.0 additionally allows employers to make matching contributions for qualified student loan payments to various retirement plans, allowing student loan borrowers to build their retirement savings while also paying down their student debt. Other changes in the SECURE Act 2.0 include: the IRS may allow up to $1,000 in penalty-free emergency withdrawals and employers can offer automatic enrollment in emergency savings accounts of up to $2,500, individuals experiencing domestic abuse may withdraw up to $10,000 or 50% of their retirement savings penalty-free, individuals with a terminal illness may take distributions without penalty with a physician’s certification, and the age for beginning required minimum distributions (RMDs) will be raised to 73 and then to 75 in 2033, among other changes.[5]
Plan sponsors should review their retirement plan policies to ensure compliance with the SECURE Act 2.0 changes. It's also essential to clarify these details for seasonal and temporary workers in their employment contracts. By doing so, employers can avoid misunderstandings and ensure that temporary workers receive the benefits they are entitled to under the law.
The DOL's Ruling on Independent Contractors
The DOL's new ruling on independent contractors has implications for how temporary workers are classified and, consequently, their eligibility for benefits. In January 2021, the DOL introduced a framework to address the issue of worker classification under the Fair Labor Standards Act (FLSA), but it faced challenges. In January 2024, the DOL rescinded the prior rule and replaced it with the final rule, effective March 11, 2024, to provide clearer guidance on worker classification under the FLSA.[6]
The final rule utilizes a six-factor test that considers an individual's entire activity rather than focusing on specific factors. This "totality-of-the-circumstances" approach examines: (1) the worker's opportunity for profit or loss; (2) investments by both parties; (3) the permanency of the work relationship; (4) the nature and extent of control over the work; (5) whether the work is integral to the employer's business; and (6) the worker's skill and initiative.[7]
This change means that employers must carefully assess how they classify temporary workers, as misclassification could lead to issues related to benefits eligibility and compliance with the FLSA. It also underscores the importance of understanding and applying the new rules to ensure compliance and fair treatment of temporary workers. The distinctions between employees, independent contractors, temporary workers, and seasonal workers are crucial for determining benefits eligibility and ensuring compliance with relevant laws and regulations.
Best Practices for Plan Sponsors
In light of these changes, plan sponsors should review their policies with legal counsel to ensure clarity on benefits eligibility for temporary workers. Compliance with regulations and accurate tracking of workers’ hours and responsibilities are essential.
As the job market continues to evolve, plan sponsors must stay informed about changes in regulations affecting temporary workers' benefits eligibility. By understanding the implications of the SECURE Act and the DOL's ruling on independent contractors, plan sponsors can ensure compliance and provide valuable benefits to their temporary workforce.
By reviewing policies, clarifying benefits eligibility in employment contracts, and tracking hours accurately, employers can navigate the complexities of enrolling temporary workers in benefits successfully.
[2] https://www.irs.gov/pub/irs-drop/n-24-02.pdf
[6] https://www.dol.gov/agencies/whd/flsa/misclassification/rulemaking
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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