In general, amendments to eligibility (either age or service requirement) are permissible throughout the plan year, within reason, and do not require a specific notice to participants aside from the Summary of Material Modifications (or new Summary Plan Description in the case of a Restatement).
Eligibility to participate in your plan can be limited to those who have reached a certain age (between 18-21) or can be limited to those who have worked at the company for a certain period of time (up to 12 months). Changes to your plan’s service requirement will apply to participants who have not yet entered the plan and will not affect participants already in the plan.
A change that decreases the eligibility requirements for employees can be put into effect immediately, without concern for cutting back vested benefits. An example would be a change from 6 months service to immediate eligibility.
A change to make eligibility more restrictive can only be made prospectively or wait until the first day of the next plan year to be made. This depends on your plan’s design and whether the change will reduce benefits to existing employees. Guideline generally allows changes to your plan prospectively and grandfather in existing participants into the plan. This method avoids issues with benefit cutbacks.
Some amendments to eligibility cannot be made immediately as they would result in a cutback in benefits. For example, you cannot generally remove Safe Harbor contributions to eligible plan participants unless you have given 30 days notice. If your plan has Safe Harbor design, a change to eligibility under the Guideline plan can only be done with required notice.
Union and Leased Employees
Unions typically negotiate benefit packages for their members. The employer may choose whether or not to include union employees in the plan. If your company workforce includes employees leased from a leasing organization or staffing agency, the employer may choose whether or not to include leased employees in the plan. If your participants are union or leased employees and you are unsure if they are eligible to participate, feel free to contact plan administrator support.
Employer contributions to the plan may be subject to a vesting schedule. A change in your plan’s vesting will only affect future contributions; the vesting of employer contributions already received will not be affected. You can learn more about vesting here and in the Account & Enrollment section.