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

Today’s post is by Curtis Farmer, who is the Retirement Program Manager at Cascade. In addition to his oversight of the 401k and pension programs, he teaches classes and webinars (you can download his latest free webinar), and provides insight and direction on retirement strategy and compliance for our Members. Below is a recent question from an employer.

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 401k program. Is this legal? 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 401k 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 401k eligibility and part-time for other purposes I’d advise against using that terminology in the 401k employee handbook policy.  Rather, clearly define the eligibility requirements in the employee handbook (i.e. employees must be  at least 21 years of age and have one year of services with at least 1,000 hours worked), as well as provide a Summary Plan Description to that employee that spells out any and all requirements in plain, clear language.

Do you have a question about retirement plan options or compliance? Please don’t hesitate to contact us.

Related Posts Plugin for WordPress, Blogger...

Leave a Comment

Previous post:

Next post: