Text Box: Part-time Employees   Could our 401(k) Plan require even my part-time employees to become participants?   The short answer – YES!   Employers may not be aware that “part-time”, “as-needed”, or “seasonal” (i.e. someone who works only during the summer) employees are not permissible classifications of employees that can be excluded from retirement plans and must be offered the opportunity to participate.  Confusion often arises because these classifications are being used to exclude these employees from participating in other employee benefit plans (i.e. health plan, dental plan, etc.) due to their part-time status.  Employers often mistakenly believe that these employees are also not eligible to participate in their retirement plan.  This is simply not the case.  Unless an employee is a permissible “Excluded Employee” under the plan, he or she, following the date they complete the plan’s age and service eligibility requirements, must become a participant no later than the plan’s Entry Date.   The IRS has said that “the exclusion of part-time employees or seasonal employees by category, where the term "part-time" employees is defined on the basis of a customary work schedule (e.g., less than 20 hours per week), is an impermissible service condition, because the exclusion relates solely to the employee's service.”  Under a 401(k) arrangement, the maximum service condition that can be imposed for determining an employee’s eligibility to defer into a plan is one Year of Service.  The maximum hours that can be used to determine if an employee meets the Year of Service definition is 1000 hours during the computation period (which, except for the first year employed, is typically the Plan Year).  Under the one Year of Service definition, it is possible that a part-time or seasonal employee could be credited with enough hours of service to earn a Year of Service. For example, a part-time employee who normally works less than 20 hours of service per week might end up working substantially more hours because of a special project, overtime, or busy seasons. If this employee were excluded from the plan solely because of his or her classification as a “part-time” employee, the plan would be in violation of the minimum service requirements.   Usually, due to the plans’ design features, a part-time, as-needed, or a seasonal employee will not work enough hours to become eligible.  But if they do, it is important that they be given the same plan-related documents as any other employee who has met the eligibility requirements.  If you are not sure if an employee has met eligibility requirements, contact your administrator at PPA and we will help you determine whether or not that employee has met the requirements to participate in the plan.

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Text Box: The following article contains general plan facts and is intended for informational purposes only.  To ensure that your plan contains specific provisions outlined in this and future articles, please contact your third party administrator or plan ERISA attorney.