Can a 401(k) plan exclude part-time employees from participation?


Your company sponsors a 401(k) plan. Currently, you allow all employees to participate in the plan. Can your company amend the plan to exclude part-time employees from participation?


No, your company cannot amend its 401(k) plan to include a blanket exclusion of part-time employees from participation. Internal Revenue Code Sec. 410(a) provides certain minimum participation requirements for a plan to be qualified. One of these requirements is that, generally, a plan cannot require an employee to complete more than one "year of service" with the employer before becoming eligible to participate in the plan. A "year of service" is generally a 12-month period during which an employee has not less than 1,000 hours of service (or a lower number of hours selected by the plan sponsor). The IRS has issued guidance stating that a plan provision will be treated as violating Code Sec. 410(a) if the plan provision could result in the exclusion, by reason of a minimum service requirement, of an employee who has completed one year of service.

A plan that excludes a class of employees using a service-based classification, such as “part-time employees,” violates Code Sec. 410(a) if the classification could result in an employee who completes one year of service being excluded from the plan. For example, if a plan excludes "part-time employees" and defines part-time employees as employees who “work 20 or fewer hours per week,” this definition might end up excluding employees who actually work 1,000 or more hours during a 12-month period.

[ Return to top of document ]