Part Time Employee Exclusion

[Randy Watson]

There's a Quality Assurance Bulletin from 2006 which allows employers to categorically exclude part time employees as long as any part time employee who reaches 1,000 hours of service be eligible to participate in the plan. The plan must include this failsafe language. This doesn't seem to work well with a 401(k) plan that has a service condition more favorable to employees, such as 30 days, or immediate entry. I'm thinking that this concept was designed for plans that had a year of service eligibility condition. For example, a part timer can't make deferrals until they reach 1000 hours, but everyone else can begin making deferrals upon completing 30 days of service. My question is whether this failsafe approach is permissible in a plan that has a service period shorter than a year of service. If so, I assume we would have to test the different eligiblity provisions under 401(a)(4). By the way, the plans in every example have a year of service condition. Help!

[Guest jjren]

There's a Quality Assurance Bulletin from 2006 which allows employers to categorically exclude part time employees as long as any part time employee who reaches 1,000 hours of service be eligible to participate in the plan. The plan must include this failsafe language. This doesn't seem to work well with a 401(k) plan that has a service condition more favorable to employees, such as 30 days, or immediate entry. I'm thinking that this concept was designed for plans that had a year of service eligibility condition. For example, a part timer can't make deferrals until they reach 1000 hours, but everyone else can begin making deferrals upon completing 30 days of service. My question is whether this failsafe approach is permissible in a plan that has a service period shorter than a year of service. If so, I assume we would have to test the different eligiblity provisions under 401(a)(4). By the way, the plans in every example have a year of service condition. Help!

We have handled this by having split eligibility conditions. For example eligibility is 3 months of service for anyone except part-timers and One Year of Service for part-timers.

[Randy Watson]

There's a Quality Assurance Bulletin from 2006 which allows employers to categorically exclude part time employees as long as any part time employee who reaches 1,000 hours of service be eligible to participate in the plan. The plan must include this failsafe language. This doesn't seem to work well with a 401(k) plan that has a service condition more favorable to employees, such as 30 days, or immediate entry. I'm thinking that this concept was designed for plans that had a year of service eligibility condition. For example, a part timer can't make deferrals until they reach 1000 hours, but everyone else can begin making deferrals upon completing 30 days of service. My question is whether this failsafe approach is permissible in a plan that has a service period shorter than a year of service. If so, I assume we would have to test the different eligiblity provisions under 401(a)(4). By the way, the plans in every example have a year of service condition. Help!

We have handled this by having split eligibility conditions. For example eligibility is 3 months of service for anyone except part-timers and One Year of Service for part-timers.

And test under 401(a)(4)?

[Guest jjren]

There's a Quality Assurance Bulletin from 2006 which allows employers to categorically exclude part time employees as long as any part time employee who reaches 1,000 hours of service be eligible to participate in the plan. The plan must include this failsafe language. This doesn't seem to work well with a 401(k) plan that has a service condition more favorable to employees, such as 30 days, or immediate entry. I'm thinking that this concept was designed for plans that had a year of service eligibility condition. For example, a part timer can't make deferrals until they reach 1000 hours, but everyone else can begin making deferrals upon completing 30 days of service. My question is whether this failsafe approach is permissible in a plan that has a service period shorter than a year of service. If so, I assume we would have to test the different eligiblity provisions under 401(a)(4). By the way, the plans in every example have a year of service condition. Help!

We have handled this by having split eligibility conditions. For example eligibility is 3 months of service for anyone except part-timers and One Year of Service for part-timers.

And test under 401(a)(4)?

Coverage and nondiscrimination for the "otherwise excludable employees" done separately Rare to have an HCE in that group anyway, so it's (almost) an automatic pass