Bipartisan bill would lower DC plan eligibility age to 18 

January 3, 2024

Recently introduced bipartisan legislation, the Helping Young Americans Save for Retirement Act (S 3305), seeks to spur more savings by younger workers in defined contribution (DC) plans. The bill would require sponsors of 401(k) and ERISA-covered 403(b) plans to let employees age 18 through 20 contribute after they complete one year of service. However, employers could exclude these younger workers from receiving any employer-matching or nonelective contributions. If enacted, the bill would take effect for the 2026 and later plan years.

Sponsored by Sens. Tim Kaine, D-VA, a senior member of the Health, Education, Labor, and Pensions (HELP) Committee, and Bill Cassidy, R-LA, the committee’s top Republican, the bill piggybacks on the recent expansion of 401(k) and 403(b) plan access to long-term part-time workers under the Setting Every Community Up for Retirement Enhancement Act of 2019 (Div. O of Pub. L. No. 116-94) (SECURE 1.0) and SECURE 2.0 Act of 2022 (Div. T of Pub. L. No. 117-328) (SECURE 2.0).

Speaking about the new bill, Cassidy said that “Americans who decide to enter the workforce instead of going to college should have every opportunity available to save for retirement. This legislation increases those opportunities and empowers working Americans to plan for a secure retirement.” Noting that young people “should be able to access employer-sponsored retirement plans like everyone else,” Kaine said the bill would help “put them on a path to a better financial future.”

Next steps for the bill are unclear, though the HELP Committee could take it up at some point in 2024. The measure may eventually be incorporated into a larger package of retirement reforms, though enactment of that measure would probably have to wait until the next Congress at the earliest.

Many DC plans currently exclude from participation employees who aren’t yet age 21 because these younger workers often hold short-tenure positions with high turnover. The bill would require plans to make employees ages 18 through 20 eligible to contribute, subject to certain conditions.

One year of service required. The bill attempts to mitigate the costs of covering workers ages 18 through 20 by requiring eligibility only after these employees complete 1,000 hours of service in a 12-month period. Plans wouldn’t have to let employees under age 21 participate under the rules for long-term part-time workers.

Employer contributions not required. Employers could still limit eligibility for any matching and nonelective contributions to employees ages 21 and older who have completed a year of service (or two years if the contributions are immediately 100% vested).

Nondiscrimination testing relief. Employers could elect to apply the same nondiscrimination testing relief to younger workers that’s available for long-term, part-time workers under the SECURE 1.0 and 2.0 acts. That option lets employers exclude younger workers from the nondiscrimination, minimum coverage and actual deferral percentage (ADP) and actual contribution percentage (ACP) tests and the ADP and ACP safe harbors, as well as special treatment of younger workers under the top heavy test.

Five-year exclusion from plan audit threshold. ERISA-covered DC plans with 100 or more participants are generally required to obtain an annual audit report from an independent qualified public accountant (IQPA). For five years after the first employees ages 18 to 20 become participants, the sponsor could exclude all workers ages 18 through 20 when determining if the plan needs an audit.

• S. 3305, the Helping Young Americans Save for Retirement Act (Congress, Nov. 15, 2023)
• Press release (Sen. Bill Cassidy, Nov. 15, 2023)

• User’s guide to SECURE 2.0 (regularly updated)