Eligibility is the set of rules, usually a combination of age and service with your company, that determines which employees can participate in the plan when they can enroll, and who is excluded.
We highly recommend keeping your eligibility rules simple and reporting all employees on payroll files each and every pay period.
You can view your employee eligibility through your employer portal, in the “Employees” tab under the “Status” column.
Exclusions
Generally, retirement benefits must be offered to all common-law employees who meet the plan's eligibility requirements. An employee's age and service requirements become important if you have part-time employees to whom you prefer not to offer retirement plan benefits.
We exclude four classifications of employees by default. Unless directed otherwise by payroll files submitted by you or your payroll company, the following types of employees will not be eligible to participate in the plan:
- Union Employees: Included in a unit of employees covered by a collective bargaining agreement, if retirement benefits were the subject of good faith bargaining, and if the collective bargaining agreement does not provide for participation in this Plan.
- Nonresident Alien: A non-citizen who received no U.S.-based earned income. This exclusion means that any nonresident, non-citizen, or resident non-citizen, may be eligible for the plan if receiving US-based income. We require a social security number (SSN) and a US address (excluding US territories and commonwealths) to process retirement plan distributions, which may impact your ability to offer the plan to certain employees or create the need to explore different options.
- Leased Employees: A non-employee who, pursuant to an agreement between the employer and any other entity ("leasing organization"), has performed services for the employer. If you typically use the service of a leasing organization for long-term contracts, we recommend that you obtain advice from legal counsel regarding the applicability and impact of any leasing terms on your plan.
- Residents of Puerto Rico: Puerto Rico residents are subject to two sets of tax regulations, one from the Puerto Rico Department of Treasury (Hacienda) and one from the IRS, which means their employer’s 401(k) plan must be “dual-qualified.” Our platform does not support dual-qualified plans or the associated tax reporting. You are responsible for determining the residency status of their employees and indicating which employees are Puerto Rico residents through the Sponsor Portal.
Eligibility for Plan Participation
You may set certain conditions employees must satisfy in order to participate in the plan, upon meeting those conditions, the employee enters the plan on specified entry dates. The maximum statutory requirements you may apply are:
Age Requirements
This is the minimum age for an employee to become eligible to join the plan. The maximum selectable option is (by statute) age 21. Employees tend to choose between age 18 and 21, though it is not mandatory to have any age requirement.
Service Requirements
By default, your plan can require employees to work at least 1,000 hours within a 12-month period before becoming eligible to participate. This is the maximum service requirement that can be applied under federal law. Once this threshold is met, employees will enter the plan according to the designated entry dates selected by your plan (monthly, quarterly, or semi-annually).
Under Congress’s SECURE Act (2019), part-time employees who have worked at least 500 hours per year for three consecutive years were eligible to participate in the plan solely for the purpose of employee salary deferrals starting January 1, 2024. Any service prior to January 1, 2021 is not counted toward eligibility. A subsequent change to that legislation under SECURE Act 2.0 changes this requirement so that a plan must allow part-time employees to defer compensation into the plan who have worked at least 500 hours per year for two consecutive years. This change goes into effect January 1, 2025.
Note: When working with us in a bundled capacity, the same eligibility rules will apply to all employee classifications as well as all contribution types. This means that employees eligible to contribute to the 401(k) will also be eligible for matching and profit-sharing contributions, if applicable.
Entry Dates
Once employees meet the age and service requirements selected, they must wait until the next entry date to join the plan. Similar to age and service requirements, entry timing is highly dependent on your goals for your employees. Allowing employees to join quickly can engage them in saving from their paycheck sooner while lengthening the time between entry dates is less burdensome in higher turnover environments.
Standard options include:
- Monthly: First of the month on/after meeting age and service (e.g., January 1, February 1, March 1)
- Quarterly: First of the calendar quarter on/after meeting age and service (January 1, April 1, July 1, October 1)
- Semi-annually: First of January and July on/after meeting age and service
To learn more, we recommend you view your Plan Adoption Agreement Guide.
Identifying Long-Term, Part-Time (LTPT) Employees in Your Employer Portal
A long-term, part-time (LTPT) employee is someone who works part-time consistently over a defined period and becomes eligible to contribute to their company’s retirement plan under specific regulatory provisions. These provisions do not apply to employees excluded from the plan under adoption agreement elections such as leased, union and/or non-resident non-citizen employees. However, these provisions do apply to employees categorized under any group exclusions based on service (i.e. part-time or temporary employees), if elected under the plan.
For calendar year plans beginning 1/1/2024: Employees were considered LTPT as of January 1, 2024, and permitted to enter the plan for deferral purposes if they were at least 21 years of age and met the following criteria:
- Worked at least 500 hours in 2021, 2022, and 2023; OR
- Were hired in 2021 and worked at least 500 hours in their first 12 months, as well as in 2022 and 2023.
For calendar year plans years beginning 1/1/2025: Employees are considered LTPT as of January 1, 2025, and must be permitted to enter the plan for deferral purposes only if they are at least 21 years of age and meet the following criteria:
- Worked at least 500 hours in 2021 & 2022, 2022 & 2023, OR 2023 & 2024; OR
- Were hired in 2021 and worked at least 500 hours in their first 12 months, as well as in 2022; hired in 2022 and worked at least 500 hours in their first 12 months, as well as in 2023; OR hired in 2023 and worked at least 500 hours in their first 12 months, as well as in 2024.
To see which of your employees are considered an eligible LTPT employee, please follow these instructions:
- Navigate to the “Employees” page in your portal.
- View the LTPT employee(s) in your plan by either:
- Switching on the “Show LTPT Employees” toggle located next to the “Status” dropdown. Note: Only plans that support hours-based eligibility will see the LTPT toggle.
- Downloading a report by clicking the Download Report button. From the downloaded file, you will see a full employee list. There will also be a column that calls out LTPT employees.
Learn more about retirement plan eligibility for LTPT employees here.
Dual Eligibility
What Is Dual Eligibility?
Dual Eligibility is a feature in retirement plans that allows employers to set different eligibility criteria for various types of contributions. Often when an employee becomes eligible to save in their employer’s retirement plan, they are also eligible for their plan’s employer match and profit sharing contributions. However, plans with Dual Eligibility specify different eligibility rules for certain contribution types such as:
- Employee Contributions - Contributions made by employees from their salary.
- Employer Discretionary Match - Contributions made by the employer to an employee’s account that are based on the percentage an employee chooses to save, up to a set threshold.
- Profit Sharing Contributions - Contributions made by the employer at their discretion, generally shared among employees according to a set formula.
For example, an employer may set the eligibility requirements as follows:
- Employee Contributions - Employees are eligible after 6 months of hire date.
- Employer Discretionary Match and Profit Sharing Contributions - Employees are eligible after 12 months of hire date.
This feature allows for more flexibility in setting eligibility criteria for different contribution sources.
If you have Dual Eligibility set up for your plan, you may navigate to the “Employees” page and see the eligibility of each contribution type in the employee grid.
In addition, each employee’s eligibility card will show all three sources.
Dual Eligibility Match Calculation Process
Generally, matches are calculated by the payroll system, and match amounts are provided by the employer to us as part of the contribution submission.
However, when there are different eligibility rules for employee deferrals versus an employer match, the payroll system cannot determine which employees should or should not receive a match. As a result, the match cannot be set within the payroll system.
Instead, we automatically calculate the match when contributions are submitted, based on:
- The match formula set in your plan documents
- The match funding frequency aligned with your payroll period
- Our determination of eligible employees based on your plan’s criteria
- The total employee contribution amount (Roth and/or pre-tax)
- Employee salary information provided per pay period
Note: Because of how the match will be calculated by us, the match amounts will not be reflected in your payroll system, or on your employees’ paystubs. Once employer contributions are processed, the amounts will be visible in your employer portal as well as to your employees in their saver portal.
Responsibilities for Employers With Dual Eligibility
In order for Dual Eligibility to work correctly and for match amounts to be calculated, employers should:
- Submit all match-eligible employees' salaries for each applicable payroll period during contribution submission.
- If your plan has an active payroll integration, be sure to remove any match formula from the payroll system.
If you have any questions regarding Dual Eligibility, please contact us directly.