401K Q&A – Who Is Eligible To Participate?

by Curtis Farmer on January 3, 2011

in Compliance,Questions

Photo courtesy of www.curtisleephotography.com
Photo courtesy of www.curtisleephotography.com

Lately we’ve seen an uptick of inquiries with respect to 401(k) plans, specifically around benefit eligibility requirements when writing policies for employee handbooks. Here’s just one example.

Employer’s Question: We’ve had some doubts lately regarding the retirement benefit statement in our handbook which states that only full-time employees are eligible for being in a 401(k) program. Isn’t there a federal hour requirement that mandates when employees can participate, which means that part-time employees may be eligible?

Curtis’ Answer: Yes, there is a federal hour requirement, and your part-time employees may be eligible to participate. The most restrictive an employer can make 401(k) eligibility is to require an employee to be at least 21 years of age and have one year of service with at least 1,000 hours worked. 

If an employer defines a part-time employee as having worked less than 1,000 hours, then perhaps that’s the reason for using the term “part-time” in the handbook. Because there may be differences between what the company considers part-time for 401(k) eligibility and part-time for other purposes, we’d advise against using that terminology in your 401(k) policy. Rather, clearly define the eligibility requirements in the policy (i.e., employees must be at least 21 years of age and have one year of service with at least 1,000 hours worked), as well as provide a Summary Plan Description to employees that spells out any and all requirements of the Plan in plain, clear language.

Do you have a question about retirement plan compliance or options? Cascade offers retirement plan management services through Matisse Capital, bringing our members an outstanding resource for employee education and retirement savings.

Related Posts Plugin for WordPress, Blogger...

Leave a Comment

Previous post:

Next post: