You can require that your employees meet certain requirements before they will be eligible to enroll in your 401(k) plan. Eligibility requirements can be set during the plan setup phase for new plans or throughout the plan year via an amendment for existing plans. However, when added to an existing plan, the requirements will only apply to those who are not already eligible and have entered the plan.
When amendments are made, participants will receive an email notification regarding the changes, which can also be reviewed in an updated Summary Plan Description within their participant dashboards.
Types of plan eligibility requirements
Guideline plans offer the following eligibility requirement options:
Age requirement: This can prohibit eligibility until an employee reaches a specified age of 18, 19, 20, or 21
Service requirement: This can prohibit eligibility until an employee has worked with your company for 3, 6, or 12 months
Non-resident alien, union, and leased employees
In addition to the eligibility requirements for age and service, you may choose to exclude employees in a certain class. At Guideline, non-resident aliens with no US-sourced income and residents of Puerto Rico are always excluded.
Non-resident aliens are employees who are not permanent residents of the United States and any income they receive is not taxed by the US. Residents of Puerto Rico typically also do not have US-sourced income. Because it may not always be clear to you how a Puerto Rican resident is claiming their income, plans at Guideline exclude them as a separate class, as well.
Union and leased employees are also excluded from Guideline plans, unless you indicate otherwise. Plans can generally choose to allow union and leased employees to be eligible if they are paid in the same manner as your other rank and file employees.
Union employees have a specific definition for eligibility purposes. In order to be excluded, their bargained for agreement must state that retirement benefits were considered in the negotiations. This does not mean that they have to get retirement benefits under the contract, just that they are mentioned. While it is almost always included, you must check your collectively bargained agreement to ensure you are allowed to exclude union employees.
If you have employees that are union, leased, non-resident aliens, or residents of Puerto Rico and you are unsure if they are eligible to participate, feel free to contact administrator support.
Part-time, seasonal, or temporary employees
Guideline plans require all other W-2 employees to be treated equally when it comes to plan eligibility. This means we are not able to exclude part-time, seasonal, temporary employees, or any other named class of employees (except those listed above) within your eligibility requirements.
How eligibility requirement amendments affect your plan
A change that makes eligibility less restrictive for employees can be put into effect immediately and will apply to all employees as of the date of the amendment.
For example, if a plan previously had a 6-month service requirement, but changed to immediate eligibility (employees are eligible on their first day of employment), then all previously ineligible employees due to the service requirement would become eligible on the date the amendment goes into effect (assuming those employees are not in an excluded class).
These employees would become participants effective the payroll date coinciding with or next following the effective date of the amendment. Because of the requirements surrounding elective deferrals, changes to eligibility requirements cannot be made retroactively.
A change that makes eligibility more restrictive can also be made at any time, but it will only apply to employees who were not already eligible and have not yet entered the plan before the date of the amendment. Employees who are already participants in the plan will remain eligible when the plan amendment goes into effect.
For example, if a plan is amended from 6 months of service to 12 months, an employee who was eligible and passed an entry date before the change will remain eligible. However, if an employee was not yet eligible or met eligibility requirements but did not pass an entry date before the plan amendment went into effect, they would become eligible after the 12 months of service requirement.
Eligibility requirements for safe harbor plans
There are special considerations when amending safe harbor plans mid-plan year. Changes that remove participants from eligibility (e.g., exclude union employees) can only be done effective the first day of the next plan year.
Changes that allow more employees to be eligible for safe harbor contributions (e.g., lowering the age requirement from 21 to 18), can be made mid-year, but there may be additional employee notification requirements.
In general, all individuals who will be newly eligible will need to receive a supplemental notice describing the changes. This notice must typically be provided at least 30 and no more than 90 days prior to the change going into effect.