Part-time employees

401k Plan currently excludes part-time employees from participating in the 401k plan.  If a full time employee moves to part-time can they be excluded prospectively? 

If an employee moves from an eligible classification to an ineligible classification, for example from division A to division B, they may be excluded prospectively. Check the plan document, as it should explain what happens when an employee moves from eligible to ineligible classification.

For service-based participation conditions, the maximum permissible condition is described in IRC 410(a) - 1 year (1000 hours) of service. If an employee has completed 1000 hours of service then they may not be excluded on the basis of service. They may not be excluded merely because their hours drop below 1000 in a later year.

16 hours ago, C. B. Zeller said:

For service-based participation conditions, the maximum permissible condition is described in IRC 410(a) - 1 year (1000 hours) of service. If an employee has completed 1000 hours of service then they may not be excluded on the basis of service. They may not be excluded merely because their hours drop below 1000 in a later year.

perkinsran, your plan document should have language that complies with this. It is probably part of the eligibility requirements.  Otherwise, excluding part-time employees will disqualify the plan.  

Quote

1.410(a)(3)(e) Example 3. A plan which requires 1 year of service as a condition of participation also excludes a part-time or seasonal employee if his customary employment is for not more than 20 hours per week or 5 months in any plan year. The plan does not qualify because the provision could result in the exclusion by reason of a minimum service requirement of an employee who has completed a year of service. The plan would not qualify even though after excluding all such employees, the plan satisfied the coverage requirements of section 410(b).