401(k) Eligibility Statutory Requirements


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Excludable Employees

A plan may statutorily exclude employees who have not attained age 21 and/or completed a “year of service.”

A plan also may exclude employees who are covered by a collective bargaining agreement that does not provide for participation in the plan, if the retirement benefits were the subject of good faith bargaining.

Other examples of excludable employees include illegal aliens, employees of “qualified separate lines of business,” and certain terminating employees.

Employees excluded under any of the above categories may be treated as “excludable” for nondiscrimination testing purposes.

Although certain categories of employees may be excluded from participating in the plan (within legal limits) (for example, temporary employees), those excluded employees must sometimes be counted for nondiscrimination testing purposes. Since they will not “benefit” under the plan, they could cause the plan to fail the coverage testing for the plan. See also the compliance task on coverage testing.

Employees Other Than Full-Time

It is important to consider how the terms of the plan affect the participation of employees working under special situations, such as rehired participants, employees working on a part-time or temporary basis, seasonal employees, leased employees, and contract employees.

If there is any question regarding how these types of employment situations should be handled for purposes of plan participation, the plan sponsor should request legal advice or other professional assistance in working through the appropriate treatment of these individuals under the law and the terms of the plan.

Here again, it is important to develop internal control procedures to confirm that all eligible employees are timely included in the plan (and to ensure that ineligible employees are not inadvertently included).