Exclusion of Employees

[Guest WyrickL]

An employer sponsors a 401k plan in which they allow entry into the plan within 3 months. They have recently acquired out of state contracts. They will be hiring out of state employees but do not want these employees to be able to participate in the plan. These employees are not leased or temporary. The company is paying these people directly and only for the length of the job which could be 3 months or more. Is there a way to exclude these individuals without changing the waiting period?

[Guest BrianF]

As long as the plan is not on a standardized prototype document, the plan could be amended to exclude out-of-state residents from participating. The plan should be careful in that the coverage testing under IRC 410(B) must still be satisfied.

[MWeddell]

While BrianF is right to be careful about the coverage testing, it doesn't sound like too much of a problem. Employees < age 21 or < 1 year of service can be tested separately (no HCEs typically in that group) and when you're looking at just the group with age 21+ and 1+ years of service, you may not have too many of the out-of-state employees left by then.