basic information to get started - seasonal employees?

[goal00]

I am working to find basic information on rules regarding seasonal employees.  I have read various IRS material and realize this is a complicated subject that will have to be handled by the employee benefits firm, but I was wondering if anyone could tell me if I am on the right track.  The business currently has a plan that is open to employees, but only three employees participate, and of those three at least one is highly compensated.  The business has many seasonal employees.  The concern is that the plan in not in compliance.  They are considering a safe harbor plan.

From what I read, there are no specific rules about seasonal workers.  A plan can impose attainment age of 21 and completion of 12 months of service (considered 1,000 hours of work).  Participation may be conditioned on two years of service, if each participate has a vested right.   Is there any general information on the rules regarding having only three employees participate when there a hundred seasonal workers (assume more than 1,000 hours)?  Thanks for any general information to help me clarify.

 

 

 

 

 

 

[Lou S.]

Try Code Sections 410(a), 410(b) and the regulations thereunder.

 

[Tom Poje]

I'd start by tossing out the term 'seasonal employees' (and just because someone works 12 months does not mean they have worked 1000 hours, so they might not be eligible

but basically, once someone works 1000 hours  in a 12 month period they will need to be included in the plan (aside from requiring 2 years @ 1000 hours.) but your document should say. the document could permit anyone to enter with no eligibility, in that case you would want to test 'otherwise excludables' separately. (that is, you can test separately those folks who wouldn't be in the plan if the plan required a 1 year/1000 hours for eligibility.

if the HCE is an owner then you also have an issue with top heavy

if there are at least 'a hundred' seasonal workers that have worked 1000 hours then you could very well have a 'large' plan if they are indeed eligible.

but the first question is exactly what does the document say for eligibility?

[PensionPro]

Seasonal or part-time employees may fail to meet the eligibility requirements if the plan imposes a 1 year of service requirement but you can not exclude seasonal or part-time employees as a job classification because the IRS treats that as imposing an impermissible service requirement.  However, your plan document may be written with certain safeguards as described in this article.

https://www.relius.net/News/TechnicalUpdateDetails.aspx?T=P&1=1&ID=1025

[ACK]

Goal00 - assuming, according to your post, that you have 100 seasonal workers who work at least 1,000 hours, then they must at least be offered the plan.  If they choose not to participate, that might be OK, as long as the plan only allows deferrals and matching contributions.  In that case, there is no 410(b) coverage issue.  The next hurdle will be the ADP test, because with those numbers, any HCE will be severely limited on being able to contribute to the plan, unless the plan uses a safe harbor formula.  But if you have a safe harbor plan, and truly have 100 employees who have chosen not to participate (after having been offered the plan) and the only contributions in the plan are deferrals and match, then you are OK.  Although, as someone mentioned, you may have enough eligible employees that you are thrown into the requirement to need an audited 5500 each year.

BTW, 401k participation cannot require a 2-year employment condition.  That can only be applied for Employer contributions, not 401k contributions.