Determining who is eligible to participate in your retirement plan is a critical fiduciary responsibility as a plan sponsor.
Your plan document will specifically define the period of service an employee must work or the age they must attain in order to enter the plan. Once they have attained those, they will enter on the next entry date defined by your plan document. The plan document may also exclude a certain class of employees. This would be a job classification that would make the employee ineligible to participate in the company retirement plan. Excluding classes of employees may also require your plan to pass additional testing. Please note that employees cannot be excluded from participation unless it is specifically spelled out in the plan document. This may or may not match the other benefits that your company offers. It is important to review your document provisions to make sure you are including and excluding the correct group of employees. If an employee moves from an excluded class to an included class, the service they performed as an excluded employee is counted. This may cause the employee to be eligible to participate at the time they change classifications, or soon afterward.
Just as critical to plan administration are the issues of rehired employees.
When an employee rejoins your firm, it is important to consider their prior service. In many cases, they will be eligible upon their date of rehire. The plan document specifically dictates when a rehired employee will enter. As a sponsor and a fiduciary, you must notify the participants of their retirement plan eligibility, in all of these cases, and allow them the opportunity to defer into the plan. You must provide materials about the enrollment process, specific required notices for the plan as well as the Summary Plan Description (SPD). Mistakes happen. Participants get missed. If you do find you have missed someone, the IRS has specific correction methods available for all of the above situations.
Be sure to check with us if you have any questions concerning retirement plan eligibility for new hires, rehires, or excluded employees in your day to day operations.
ML&R Wealth Management is a committed partner with you as a co-fiduciary on your retirement plan, and we are here to help guide you through and alleviate the administrative burden of retirement plan eligibility. Please contact us if you have questions about this topic or any other regarding your corporate retirement plans in Austin.
