What is the difference between eligibility and entry?
Eligibility: A plan 
may exclude certain employees from participating in the plan based on job class or other non-discriminatory criteria (i.e., union, leased, non-resident alien, etc).
An eligible employee becomes a participant in an organization’s retirement plan once they have fulfilled the plan’s length of service and age requirements, if applicable.
Entry: An employee enters the organization’s retirement plan and becomes a participant according to the entry date defined in the plan document. A common definition of entry date is the earlier of:
- The first day of the first plan year beginning after the date on which such employee satisfied the eligibility requirements; or
- Six months after fulfilling the plan’s eligibility requirements.
*By implementing dual entry dates on January 1st and July 1st (for a calendar year plan), the plan sponsor can ensure that no more than six months will pass between eligibility and entry.
What are the maximum permissible age and service requirements for plan eligibility?
A plan may require an employee meet certain age and service requirements as a condition of participation in the plan, as long as the requirements do not exceed the later of the following dates:
- The date on which the employee attains age 21; or
- The date on which the employee completes one year of service.
*Plans are permitted to allow for requirements more liberal than this.
**See below for exceptions
Are there any exceptions to these eligibility requirements?
Yes. Beginning in 2024, ‘long term part time’ (LTPT) employees must be allowed to make 401(k) salary deferrals in a 401(k) plan. Generally, an employee is LTPT if they are 21 and have been credited with 501-999 hours in 3 consecutive years; years prior to 2021 are ignored in this determination. Additionally, a two year service requirement is permissible for non-401(k) plans; however, this option requires immediate vesting. Also, 403(b) plans require universal availability.
How is a year of service defined?
A year of service is a 12-month period during which the employee has 1000 or more hours of service. Alternatively, a plan may define a year of service such that fewer than 1000 hours are required. The 12-month period is known as the Eligibility Computation Period (ECP). A plan may base ECPs on either anniversary of hire, or, alternatively, the first 12-months of employment shifting to the plan year. This can be demonstrated best through example. An anniversary of hire ECP for an employee hired 6/1 is straight-forward – each ECP is measured 6/1 – 5/31. Assuming a calendar year plan, the plan year ‘shift’ ECPs for an employee hired 6/1/2024 run 6/1/2024 – 5/31/2025 (first year of hire) and shift to the plan year beginning 1/1/2025 – 12/31/2025.
*Alternative “elapsed time” rules available if actual hours are not tracked.
What is considered to be an employee’s “date of hire”?
An employee’s date of hire is the date when they first performed an hour of service for the employer, not the date the offer of employment was extended to the prospective hire.
What is an otherwise excludable employee?
When a plan utilizes more liberal age and/or service requirements than the maximum limits stated above, there will be a group of employees that gain entry to the plan before meeting the maximum limits. These employees are referred to as “otherwise excludable”.
This becomes relevant when performing various compliance tests.