SECURE Act 2.0 Explained (Part III): New Retirement Plan Rules & Changes
In 2025, some important changes came into effect relating to Employer-Sponsored Retirement Plans thanks to the SECURE Act 2.0. Among the main features that came into effect includes a provision that allows more Americans the ability to now participate in these types of retirement plans sooner than previously.
What are the implications of this? It means no longer is saving for retirement and reaping the benefits of tax-deferred retirement planning simply something only full-time workers can enjoy.
Before you give this article a read, however, go ahead and read our previous two articles detailing the other major employer-sponsored plan (ESP) provisions that came into effect in 2025, in case those provisions are more applicable to your situation.
For this article, however, we will be focusing on the provision allowing for a shortened eligibility period for long-term, part-time workers.
In this deep dive, we’ll explore how this change works, who it primarily benefits, and even provide a realistic example as a “test case” to bring this provision to life so you can better understand whether it affects you or otherwise.
What Changed: The Basics of Faster Retirement Plan Eligibility
Before the SECURE Act 2.0, part-time employees faced a frustrating reality: even if you worked a significant amount of hours year after year, you still might not gain enrollment access to your employer’s retirement plan until much later–or not at all. SECURE Act 1.0 tried to address this by requiring retirement plans to allow long-term, part-time workers to make elective deferrals once they met a 3-year eligibility rule.
SECURE Act 2.0 shortens that eligibility window. Starting in 2025, employees who work at least 500 hours in each of two consecutive years are eligible to participate in their employer’s 401(k) or 403(b) plan–a full year sooner than the old rule.
This change matters because it expands retirement access–and, over time, could lead to significantly larger nest eggs for people who previously were excluded simply because of how their schedules were structured.
How Faster Retirement Plan Eligibility Affects Long-Term Workers
We’ll start by considering how this change affects those who are not brand-new hires and who have worked significant hours–long-term, part-time workers.
A More Inclusive Definition of Service
Under the prior version of the law, long-term, part-time workers had to satisfy three consecutive years of at least 500 hours worked each year before they could defer into a plan. That meant even if someone was working 1,500 hours each year–which amounts to over 28 hours a week–they wouldn’t be eligible until after three years.
That’s three years of being unable to enjoy the benefits of a tax-deferred retirement savings plan through their employment. For many workers juggling family, school, multiple jobs, or caregiving responsibilities, working full-time–even for those three years in order to participate in their ESP–wasn’t a viable option.
SECURE Act 2.0 cuts that requirement to two consecutive years of 500 hours–less than 10 hours a week–effective with plan years beginning in 2025.
Here’s what that means in practice:
- Faster entry into retirement plans. Long-term employees begin saving in their company plan sooner.
- More years of potential tax-deferred growth on retirement contributions.
- Greater incentive to stay with an employer. A shorter eligibility period increases competitiveness for employees weighing job offers or evaluating retention strategies.
Immediate Practical Impacts for Workers
For workers who are consistently contributing to Social Security and paying into retirement systems but have been excluded from company plans, this change eliminates a longstanding barrier. Now, someone with two strong seasons of consistent hours doesn’t have to wait an additional year before saving on a tax-advantaged basis at work.
This may seem like a small shift, but retirement investors know that earlier access to employer plans means more time in the market. More time in the market means more time for compound growth to work its magic.
How Shortened Retirement Plan Eligibility Affects Employers
While much of the conversation around SECURE Act 2.0 focuses on employee access and benefits, employers also face meaningful administrative, legal, and operational responsibilities as a result of the faster eligibility rules for long-term, part-time workers.
Not only is it important for individual investors to understand how changes in eligibility affect them, it’s also essential for plan sponsors to better understand this provision so they can remain compliant while minimizing disruption.
Mandatory Plan Eligibility Changes
Starting with plan years beginning in 2025, employers that sponsor retirement savings plans, such as 401(k)s,403(b)s, etc., must allow certain long-term, part-time employees to make elective deferrals once they have completed:
- At least 500 hours of service, and
- Two consecutive years meeting that threshold
Offering participation eligibility to employees that meet these conditions is not optional. Employers may no longer rely on plan language that requires three years of service for this specific category of workers. Plans must be amended to reflect the shorter eligibility window, and eligibility determinations must be applied consistently.
Failing to update plan documents or improperly excluding eligible employees can result in plan disqualification risks, IRS correction requirements, and potential penalties.
Why Shorter ESP Eligibility Periods Matter in the Real World
Consider the reality of today’s workforce: more people are working flexible schedules, gig jobs, or part-time positions than ever before. Those workers are often offered fewer benefits, including retirement plan access, compared with their full-time counterparts. This faster eligibility rule means:
- Employees with inconsistent schedules can enjoy consistent retirement planning benefits, rather than being locked out of them.
- Earned income contributes to retirement savings earlier, helping to close the savings gap.
- Employers become more inclusive by default, offering a benefit that historically was harder for part-time employees to access.
Whether you’re a student working while earning a degree, a parent balancing childcare with employment, or someone choosing part-time work for lifestyle reasons, this change levels the playing field and provides a meaningful path to retirement security sooner.
The Long-Term Impact
Over time, that one-year advantage can add up:
- Extra years of employer matching: Employer matches are free money–participating earlier maximizes this benefit.
- Tax-deferred growth: Contributions reduced by income tax that would have sat in a regular savings or investment account earning can now grow tax-deferred.
- Compound returns: Even modest contributions added earlier tend to grow substantially over decades.
A Few Final Considerations for Employers and Employees
While this rule is powerful, there are a few things to keep in mind:
- Employers are required to track service hours and eligibility correctly — systems must be updated.
- The faster eligibility rule applies only to elective deferrals. It does not automatically require employer contributions or matching for part-time employees, though some employers choose to offer them anyway.
- Service prior to 2021 is disregarded for eligibility and vesting under this rule, so counting starts fresh for most workers.
Plan sponsors should be mindful of these details to ensure compliance and maximize the benefit for workers.
Why This Change Matters
At first glance, shortening an eligibility period from three years to two may not sound groundbreaking. But in the world of retirement planning, timing is everything. Starting to save–even by just one year–can have significant effects over an investor’s lifetime. It’s why if you do even a bit of cursory research on when the best time to begin saving for retirement, you’ll find a similar answer from novices and experts alike–NOW! The longer you invest, the more time your investments will have to experience compound growth (compound returns).
SECURE Act 2.0’s faster eligibility provision removes a long-standing barrier for many Americans who historically lacked access to employer retirement plans. For long-term, part-time workers–from students to caregivers to part-timers who choose flexibility–this rule represents greater access and inclusivity in retirement planning
If you’re a part-time or long-term employee wondering whether you qualify, the best first step is to speak with your HR department or plan administrator. Confirm your hours, understand when you become eligible, and start planning how you’ll take full advantage of your retirement plan. A great way to do that is to create a budget designed to allow retirement plan contributions. You can use the budget worksheet on our website to see how viable that is in your position.
Retirement security isn’t all about how much you can save–it’s about when you start. A little over a long period is often more powerful than a lot over a short period.
If you’d like to see how even more personalization affects your retirement plan so as to be unique to you, click the button below to book a time to speak to one of our plan design specialists.
