Our company has quite a few employees who only work a few hours each week. When we setup the 401(k) plan, we wanted to allow all our employees to save, so we set the eligibility requirement at the first day of the month following an employee’s hire date. Unfortunately, hardly any of our part-timers are contributing, and it has become burdensome and expensive to keep up with all the notices we have to provide each year to people who don’t even have accounts in the plan.
Is there some way we can change our plan’s provisions so that these individuals are no longer eligible or is it a once eligible/always eligible type of situation?
We actually get this question more often than you might think. Most people who ask it assume the answers will be that they are stuck with all the non-contributing, part-timers who are already eligible.
We’ve got good news for you. It is completely possible to amend your plan’s eligibility requirements to make them more restrictive up to the maximum waiting period of attainment of age 21 and completion of 1 year of service (12 months of service with at least 1,000 hours worked) with semi-annual plan entry dates. Everyone who has not satisfied the newly amended requirements is kicked out of the plan.
There are several caveats to keep in mind (aren’t there always…).
There you have it. As retirement plan questions go, this one has a relatively straight-forward answer. For more information on plan eligibility, please visit our Knowledge Center here, here, and here.