I have a question on excludable employees within a 401k Plan.

[Guest Michael Anderson]

I have a group who would like to start a retirement plan, however they have a very high turn over rate among most of their staff. They would like to be able to have just the managers be eligible. Is this possible? The managers are salaried and the rest paid hourly-could the hourlies be considered an excludable group? Any help would be appreciated! Thanks!

[MWeddell]

It seems unlikely that this will work unless the hourly employees are in a collective bargaining unit. Code Section 410(B) limits the extent to which a plan can cover a disproportionate number of highly compensated employees.

[Tom Poje]

you can always exclude anyone you want from the plan, but as Weddell pointed out, you might not pass coverage.

If there is such a high turnover rate you have the option of a 2 year wait 100% vesting - maybe none of the others will come in anyway.

even a 3/20 vesting schedule means you will have a lot of forfeitures if the high turnovers leave after 3 years or less.

[Guest jim williams]

You are allowed to create excludable job classifications based on method of compensation ( salaried vs hourly). However, these would not be considered statutorily excludable employees, therefore, I agree it would be difficult to pass the 70% ratio. If you have even one hourly employee who satisfies the eligibility requirements and doesn't benefit, the plan would fail the nondiscriminatory requirement.

[R. Butler]

I agree with all of the above posts. Just a thought, if the turnover is really high, the basic 21 & 1 plan entry requirements may prevent many from entering. Also if plan is not going to be top heavy, you might want to consider a 5 year cliff vesting schedule.

[actuarysmith]

Are the managers (or most of them) actually HCE's? If they are not, you can set up a plan that just covers managers.