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 Vestwell 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.
Vestwell excludes three 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. Vestwell requires a social security number (SSN) and a US address 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.
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 Vestwell 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, visit your Plan Adoption Agreement Guide.