Excluded employees

[John Feldt ERPA CPC QPA]

A plan sponsor wants to write the plan to exclude employees that continue to work part-time less than 20 hours per week after retirement. Is this a potential age discrimination violation?

They also want to exclude a class of employees who are hired for a contracted defined period of time of less than 1 year. Problems with that?

[Tom Poje]

well, if the plan is not top heavy, someone who works less than 20 hours a week probably wont work 1000 hours, so if the plan has a 1000 hours alloaction requirement they won't receive anything anyway, though they could possibly hurt testing because they are includable and not benefiting. If the hours are less than 500 hours a year, then conceivably they would have a break in service, and therefore could become ineligible if the plan is not using rule of parity. of course that doesn't really work with a 401k - even the IRS indicated you can't really operate a 401(k) under conditions like that.

if someone never works a 1000 hours then not sure how they would ever enter the plan with a 1 year wait, so I guess it depends on how many hours the contracted workers will have

[QNPG]

A plan sponsor wants to write the plan to exclude employees that continue to work part-time less than 20 hours per week after retirement. Is this a potential age discrimination violation?

They also want to exclude a class of employees who are hired for a contracted defined period of time of less than 1 year. Problems with that?

If the contracted employees are paid by 1099, they would be ineligible to participate. Is that possible?

[BG5150]

As for the contracted employees: as long as you have a definitely definable class of people you want to exclude you can, as long as you are passing your coverage tests.

[John Feldt ERPA CPC QPA]

Thanks. The plan has a short eligibility requirement now, so I think the contracted people will be alright as excluded during that time, especially since the employer just indicated that they let them enter if they kept them empliyed after 1 year.

But, excluding someone who semi-retires, but who has been eligible still concerns me. They change to part-time in order to semi-retire - isn't that an age disrimination issue since it would only affect older employees?

[John Feldt ERPA CPC QPA]

Perhaps the problem is that "retiree" is not a job classification, and so a simple change by reduction in hours does not and cannot undo their eligibility for the plan?

[GMK]

a simple change by reduction in hours does not and cannot undo their eligibility for the plan?

I think that's right. Once a participant, always a participant, as they say.

Even if everybody working less than 20 hours per week is excluded (at least prospectively), they probably couldn't be kept out if they got 1000 hours in a year.

It may help in defending that the exclusion of part-timers is not based on age if in practice the positions where an employee can work less than 20 hours a week are available/offered to persons under age 40, not just older employees.

In addition, employees can waive their age rights, but I'd get an attorney's advice before doing that.