Retirement Plan Services: Who is Eligible?

Retirement Plan Services: Who is Eligible?

By: Julie Reinhardt, Retirement Associate

Determining who is eligible to participate in your retirement plan is a critical fiduciary responsibility as a plan sponsor. The current 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 entry date defined by your plan document. As a sponsor and a fiduciary, you must notify and allow the participants the opportunity to defer into the plan. It is also critical that you document the offering in case of an audit.
Just as critical to plan administration are the issues of rehired employees and excluded 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. Plan documents may also exclude a certain class of employees. In the event that someone 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. Excluding classes of employees may also require your plan to pass additional testing. Lastly, 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.
Employees are allowed to rollover funds from other retirement plans and IRAs into your plan. In some plans, the employee may need to satisfy eligibility first; other plans allow those rollovers to come in right away. The plan document will specify when rollovers can be rolled into the plan. In many cases, the participants can roll those funds out of the plan, take a distribution or a loan at any time after that rollover occurs. The plan document would spell out any situation where those rollover funds would not be available.
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 new hires, rehires, excluded employees, and rollovers into the plan. ML&R Wealth Management is here to help guide you through and alleviate the administrative burden of eligibility. Please contact us with any questions.

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