Eligibility when an employee has less than 1000 hours.

[Guest Sara H]

If a 401(k) plan has their eligibility requirements set as 1000 hours of service to get into the plan, what happens if in year one an employee has 1000 hours and the second year they only have 600 hours? Are they still eligible to participate in the plan or do they have to quit participating? What are the requirements in regards to this?

[Wessex]

The employee would remain eligible in year two. Once an employee has met the eligibility requirement, the employee would remain eligible. If the allocation of any employer contributions under the plan is conditioned on having at least 1000 hours during the plan year, the employee would not be receive an allocation even though the employee remained eligible to participate.

[david rigby]

Correct. But watch out for top-heavy minimums.

[Guest Alexander Calin]

Both above answers are correct. But if profit sharing contribution, might be obliged to allocate a contribution in order to pass 410(B)

[This message has been edited by Alexander Calin (edited 01-31-99).]

[MWeddell]

I agree with the above post by Alexander Calin, except if forfeitures are allocated to all participants regardless of the 1000 hours requirement, one can still count the employee for 410(B) purposes and the contribution allocation (which includes a 1000 hour requirement) may still meet a 401(a)(4) safe harbor. Hence, it's possible for the exclusion of this participant to not hurt your testing.