Temporary Employees

[Guest benefitsanalyst]

Can a 401(k) plan allow participation to temporary employees (i.e. employees hired by the company for a specific time period to complete an assignment)? If so, are there typically any requirements for eligibility of this group - could it be different than eligibility for regular employees?

[ERISAnut]

A company can alway elect to have immediate eligibility which would make the temporary employees eligible to defer on their first day of employment.

A company can also provide for different eligibility requirements for different classes of employees (as long as this is done on a nondiscriminatory basis).

What a company cannot do is EXCLUDE employees based on a service class definition (i.e. temporary or seasonal or part-time). A service class definition is one where the class is defined based on a customary work schedule; and not necessarily by name alone. Hence, it is a facts and circumstances as opposed to a semantics issue that drives this.

[E as in ERISA]

In other words you can define the class of eligible or ineligible employees by what they are doing ("photocopiers" or whatever the temporary special project is). Or you can exclude them as employees who work 1,000 hours or under. (Which generally doesn't work if you have immediate entry or any other service period less than a year). But you can't define by "temporary" employees. Because "temporary" is a time-related class. And by law the only time class that can be excluded is "1,000 and under."

[Locust]

Some plans have immediate eligibility for most employees, but more stringent eligibility for "temporary employees" - typically requiring that they work at least 1000 hours in a 12 month period before being allowed to enter the plan. The IRS/DOL seems to approve this approach, but it's the sort of thing you'd want to get approval for - a determination letter. [Personal opinion - it seems odd that the government would allow this, because the designation of "temporary" seems arbitrary - payroll departments have a tendency to designate everyone whom the consider not "benefits eligible" as "temporary employees."]

[ERISAnut]

Some plans have immediate eligibility for most employees, but more stringent eligibility for "temporary employees" - typically requiring that they work at least 1000 hours in a 12 month period before being allowed to enter the plan. The IRS/DOL seems to approve this approach, but it's the sort of thing you'd want to get approval for - a determination letter. [Personal opinion - it seems odd that the government would allow this, because the designation of "temporary" seems arbitrary - payroll departments have a tendency to designate everyone whom the consider not "benefits eligible" as "temporary employees."]

It is odd, but this provision is subject to the benefits, rights, and features test. For instance, if all your full time employees are 5% owners while all other employees are temporary, the this would obviously fail the benefits rights and features test.