Can an employer exclude employees from participating under a 401(k) Plan?
Generally, all employees must be offered the opportunity to participate in the plan. The employer may set certain age and service requirements that employees must reach before becoming eligible to participate under the plan. (There are minimums and maximums in both categories: Age = not greater than 21, or less than 18; Service = not greater than one year, no minimum.) The employer can also exclude classifications of employees such as hourly paid, commissioned salesmen, etc. However, the effect of these exclusions cannot be discriminatory (i.e. result in the plan being less available to non-highly compensated employees than it is to highly compensated employees. Imposing any classification exclusions involves special testing of the plan each year to ensure the effect is not discriminatory; hence, most small to medium sized plans do not impose these restrictions so that the need for testing and potential problems are avoided. Note: Certain groups may be permanently excluded from a plan,
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