View This Newsletter: Part-Time Employees in 401(k) Plans
401(k) plans cannot simply exclude all part-time employees. This newsletter explains when part-time employees must be covered by the company’s 401(k) plan.
- Minimum Age and Service Requirements
- 1,000 hours of service and attainment of age 21
- Entry Date
- Semi-annual entry is the maximum permissible
- Effect of a Short Service Requirement
- The downside of including part-time employees in 401(k) plans
- Excluding Classes of Employees
- May exclude employees if based on objective business criteria
- Excluding Part-Time Employees with a Fail Safe Provision
- Allows full-time employees immediate entry, while minimizing part-time employee eligibility
- Service Requirements for Employer Contributions
- The plan may require a minimum number of hours of service during the plan year and/or employment on the last day of the plan year to receive an allocation of the employer contribution.
- Impact on ADP and ACP Tests
- Improperly excluding part-time employees who have satisfied the eligibility requirements will cause these tests to be performed incorrectly
- Making Excluded Participants Whole
- Qualified plans that have improperly excluded part-time employees from participation are required to make these individuals whole.
- Never assume that part-time employees are not eligible to participate in the 401(k) plan
Pinnacle Plan Design is a third-party administrator (TPA) for employer-sponsored qualified retirement plans. We specialize in retirement plan design, administration and actuarial consulting. Pinnacle has a local presence in Tucson and Phoenix, Arizona (AZ), as well as Houston, Texas (TX) and Columbus, Ohio (OH), and we proudly serve businesses nationwide.