Eligibility requirements

What eligibility requirements are

Your plan document sets who can participate and when. You can let employees in on their first day, or apply conditions up to the legal maximums:

• Age: no higher than 21.

• Service: no more than one year, normally a 12-month period in which the employee works at least 1,000 hours.

• Entry: once the conditions are met, the employee must be able to join no later than the next plan-year start or six months later, whichever comes first. Many plans use monthly or quarterly entry dates.

A plan can use different rules for different contribution types, for example immediate eligibility to defer and a one-year wait for the match. It can also exclude certain classes, such as union employees covered by a collective bargaining agreement, as long as the plan still passes the coverage test.

Long-term part-time employees

Part-timers who never reach 1,000 hours used to be excludable indefinitely. Under the SECURE Act and SECURE 2.0, an employee who works at least 500 hours in two consecutive 12-month periods must be allowed to make deferrals, for plan years beginning in 2025 or later. The employer does not have to give them matching or other employer contributions.

Why it matters to employers

Letting someone in late is one of the most common plan errors, and it is costly: the usual correction is an employer contribution to make up for the missed deferral opportunity, plus any missed match and earnings. Tracking hours and entry dates accurately, especially for part-time, seasonal and rehired staff, is what prevents it.

Common mistakes

• Excluding “part-time” or “temporary” employees by label. Exclusions based on hours must follow the service rules.

• Missing an entry date because eligibility is tracked by hand.

• Treating rehires as new employees when their earlier service counts.

• Classifying workers as contractors who are later found to be employees.

• Ignoring service with related companies in a controlled group.