Sponsors (8)
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Changes eligibility rules for employer retirement plans by adding an alternative service test based on two consecutive 12‑month periods (each with at least 500 hours) and by adjusting related Internal Revenue Code cross‑references and counting rules. It also adds a five‑year counting rule for certain employees in pension plans and updates tax-code matching references so plan administrators and employers must revise eligibility and vesting tracking. The change affects when employees (including those age 18) may become eligible for plan participation, how employers count service for vesting/benefit purposes, and related tax-treatment rules; the section text sets the effective date (not provided here).
Amends subparagraphs (A) and (B) of section 202(c)(1) to replace existing age/service period language with new text specifying alternative determinations of the permitted period and defining a first 24-month period as two consecutive 12-month periods each with at least 500 hours of service, and requiring satisfaction of subsection (a)(1)(A)(i) by the close of that period.
Adds a new subparagraph (C) to section 104(a)(2) specifying counting rules for participants in pension plans where at least one employee participates solely by reason of section 202(c)(1)(A).
Revises clauses (i) and (ii) of section 401(k)(2)(D) to alter how the permissible period under section 410(a)(1) is determined and to define the alternative period as two consecutive 12‑month periods each with at least 500 hours of service, with a requirement that the employee satisfy section 410(a)(1)(A)(i) by the close of that period.
Makes conforming changes in section 403(b)(12) to update cross-references to the amended provisions of section 202(c).
Amends subparagraphs (A) and (B) of section 202(c)(1) of ERISA (29 U.S.C. 1052(c)(1)) to read with two alternative formulations: one referencing the period under subsection (a)(1) determined without regard to a specified subparagraph and with a substitution in a subparagraph; and the other defining "the first 24-month period" as consisting of two consecutive 12-month periods during each of which the employee has at least 500 hours of service and by the close of which the employee has met the requirements of subsection (a)(1)(A)(i) (without regard to a specified subparagraph).
Makes conforming amendments to section 202(c) of ERISA: adjusts the subsection heading (by striking and inserting specified text and adding specified text) and amends paragraph (3) by replacing references to "paragraph (1)(B)" with "paragraph (1)" and replacing "section 401(k)(2)(D)(ii)" with "section 401(k)(2)(D)".
Adds a new subparagraph (C) to section 104(a)(2) of ERISA (29 U.S.C. 1024(a)(2)) stating that for purposes of subparagraph (A) and the last sentence of section 103(a)(3)(A), if at least one employee participates in a pension plan solely by reason of section 202(c)(1)(A), then no employee who participates solely by reason of section 202(c)(1)(A) shall be counted as a participant until 5 years after the date the first such employee first becomes a participant in the plan.
Amends clauses (i) and (ii) of section 401(k)(2)(D) of the Internal Revenue Code to provide parallel rules: (i) the period under section 410(a)(1) determined without regard to a specified subparagraph and with a substitution in a subparagraph; or (ii) subject to paragraph (15), the first of two consecutive 12-month periods during each of which the employee has at least 500 hours of service, provided the employee satisfied section 410(a)(1)(A)(i) (without regard to a specified clause).
Makes conforming amendments to the Internal Revenue Code: changes in section 401(k)(15) (including its paragraph heading and subparagraph (B) references), and changes in section 403(b)(12) (including replacing a reference to "section 202(c)" with "section 202(c)(1)(B)" and edits to subparagraph (D) as specified).
Who is affected and how:
Employees / plan participants: Workers—particularly younger and part‑time/seasonal employees—may see their timing for eligibility to join employer retirement plans change. Those who meet two consecutive 12‑month periods of 500+ hours may become eligible under the new test; conversely, employees who would have qualified under other tests but do not meet the consecutive‑period requirement could experience delayed eligibility. The added 5‑year counting rule affects how years of service are counted for pension plan rights such as vesting or benefit accrual for specified employee groups.
Employers and pension plan sponsors: Must update plan documents, summary plan descriptions, payroll and HR systems, and recordkeeping to track hours across consecutive measurement periods and to apply the 5‑year counting rule. These changes may increase administrative burden (systems and compliance updates) and could change employer costs if more employees become eligible for matching or pension accrual earlier.
Plan administrators, recordkeepers, and third‑party administrators (TPAs): Will need to implement new eligibility calculations, revise procedures, and ensure accurate tax reporting consistent with amended IRC cross‑references. Contracted vendors may require changes to software and reports.
Tax and payroll compliance functions: Must reconcile retirement plan changes with Internal Revenue Code requirements and employer tax/matching obligations; updated cross‑references in the IRC may affect employer tax treatment and reporting processes.
Budgetary and programmatic impact:
Timing and implementation:
Expand sections to see detailed analysis
Read twice and referred to the Committee on Health, Education, Labor, and Pensions.
Introduced May 12, 2025 by Bill Cassidy · Last progress May 12, 2025
Read twice and referred to the Committee on Health, Education, Labor, and Pensions.
Introduced in Senate