As with almost every aspect of sponsoring a retirement plan, simple questions aren’t always so simple to answer. Identifying all of your employees is critical for your plan since it is the basis upon which we perform annual compliance testing, determining eligibility, and many other critical plan functions.
Independent contractors
The fact that an individual’s compensation is reported on a 1099-R instead of a W-2 or has an independent contractor agreement is not determinative. The IRS applies twenty factors (yes!) to determine who is an employee for purposes of your plan that examines the degree of control that the plan sponsor has over the individual’s performance of their job responsibilities and whether the worker provides similar services to other employers.
Leased employees (aka “common law employees”)
Though many think a leased worker is a temporary employee of a staffing company, they can be considered an “employee” for purposes of the plan if the plan sponsor pays a fee for the individual’s services, the individual performed services for at least one year on a substantially full-time basis. The plan sponsor had primary direction over the worker’s services.
Students or interns
Some companies hire college students or seasonal interns to provide temporary assistance. If your company wants to treat that group of individuals differently for purposes of the plan, the definition should be clear as to whether “students” or “interns” applies to all students, just those enrolled in full-time undergraduate programs, or whatever variations make sense for your business. Whatever categories are used, it is important to describe them with some precision and apply them consistently. We rely on the information you provide to us.
Union members
Plan sponsors may exclude employees from participation in their 401(k) or 403(b) plan, regardless of whether they are covered by a separate retirement plan, as long as their benefits are the subject of good-faith bargaining.