Q&A: When Should I Enroll My Employees?

A retirement plan may delay an employee’s eligibility for the plan based on age, service or a combination of the two. In addition, plans may specify dates on which newly eligible employees may enroll. This is where matters often become tricky for plan administrators. We tackle this issue in a Q&A format, using the case study below.

Background: The MJ Hardware 401(k) Plan requires that new employees attain 1 year of service and age 21, before becoming eligible participate. Further, the plan defines 1 year of service as 1,000 hours worked in a 12 month period. Newly eligible employees are permitted to enroll in the plan each January 1st and July 1st. The plan year spans each January to December.

Question #1: Jim, who is 30 years old, was hired August 1st, 2015 as a full time employee. When will he be permitted to enroll in the Plan?

Answer: Jim will have attained 1 year of service on August 1st, 2016. The next enrollment date offered by the Plan is January 1st, 2017.

Question #2: Jim does not elect to enroll in the Plan on January 1st, 2017, because he is not ready to make contributions at that time. In April, Jim is now ready to contribute. Can he begin contributions immediately or does he need to wait until July 1st, 2017, the plan’s next enrollment date.

Answer: Enrollment dates apply to newly eligible employees.  Generally, eligible employees that have already surpassed their initial enrollment date, like Jim, can begin contributions any time, so he would not need to wait until July 1st.  Check your plan document for its specific procedures regarding this scenario.

Question #3: Assume Jim’s date of birth is April 15th, 1998. When can he enroll?

Answer: Jim will turn age 21 on April 15th, 2019, meeting the plan’s age requirement for eligibility. He could then enroll in the plan on July 1st, 2019.

Question #4: Jane is also hired on August 1st, 2015, but will only work part time, 25 hours each week. When can Jane enroll in the plan?

Answer: Just like Jim in Question #1, Jane will be permitted to enroll on January 1st, 2017. The MJ plan requires employees to work 1,000 hours within 12 months in order to be credited with 1 year of service. Qualified plans cannot require more than 1,000 hours for this purpose.  Multiply Jane’s weekly hours x number of weeks (25 x 52 = 1300) to determine if she reaches the 1,000 requirement.

Question #5: Assume Jane actually only works 15 hours per week in her first year of employment, for a total of 780 hours. Starting in 2017, Jane becomes a full time employee, working 40 hours per week. When can Jane enroll?

Answer: Jane does not earn a year of service in her first year, failing to work 1,000 hours. Therefore, she cannot enroll on 1/1/17 as in question #3. For employees that do not satisfy initial eligibility requirements, most plans will then make a determination once per year, based on its plan year, to determine if the employee has satisfied its eligibility requirements. That means that Jane will be able to enroll in the plan after she works 1,000 hours in the full 12 month plan year, ending December 31st. Since she will work full time in 2017, this means she will be able to enroll January 1st, 2018. Be sure to consult your plan document to determine how your plan handles this scenario.

Question #6: Jane participates in the plan for a few years, and leaves MJ Hardware as an employee in 2019. Then, on February 15th, 2020, Jane is re-hired by MJ. When can she re-enroll?

Answer: Generally, employees that were previously participated in your plan will be eligible to participate again immediately upon re-hire. This means that Jane could re-enroll on her date of hire on February 15th, 2020, or any date thereafter. As above, consult your plan document to determine your plan’s specific procedures for re-hired employees.

 

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