Our company’s workload fluctuates throughout the year with big spikes during the summer. As a result, we often hire seasonal workers who help us out during the busy times, but do not work during the regular workload months.
When we set up our 401(k) plan, we intended it to be a benefit for our regular, long-term employees. Do we have to do anything special to keep the seasonal employees from becoming eligible for the plan?
As with most retirement plan questions, one of the first places we must look is the plan document. The reason being, the document must specify which groups of employees are covered and what they must do to become eligible.
Let’s start with the employees that are covered. There are two general rules to keep in mind.
- All groups of employees are covered unless the plan document specifically excludes them.
- It is possible to exclude employees based on the type of work they do, but not their expected length/amount of service.
That second rule can make it challenging to exclude seasonal workers, because the basis for the exclusion is that they are only working for a limited duration. However, if all the seasonal employees perform similar job functions (for example, cleaning swimming pools), then you could amend your plan to exclude pool cleaners rather than summer employees.
Don’t worry; all is not lost even if the job responsibilities don’t work out that nicely and neatly. The plan document must also define what covered employees must do to become eligible to join the plan. The most restrictive conditions the plan can apply is a combination of age and service:
- attainment of age 21, and
- completion of one year of service (defined as at least 1,000 hours in a 12-month period).
The employee then joins the plan on January 1 or July 1 coinciding with or following the date he or she satisfies those requirements.
If your plan uses those maximum requirements and none of your seasonal employees work 1,000 hours in 12 months, then you are home free because none of them become eligible for the plan anyway.
Want to allow your “regular” employees into the plan more quickly than that? Not a problem. You can amend your plan to apply the 21/1-year of service requirement to just your seasonal employees and more generous requirements to everyone else.
Be mindful though if you have seasonal employees who come and go throughout the year. The eligibility requirements do not get a fresh start with each rehire date.
That means a seasonal employee who works for a few weeks in the winter, several months over the summer, and a few weeks over the holidays could potentially get to 1,000 hours in that timeframe and become eligible for the plan on a subsequent rehire date.