Seasonal Employee Eligibility for 401(k) Plan Sponsors

Navigating Seasonal Employee Eligibility for 401(k) Plan Sponsors

Seasonal employment — temporary work during specific times of the year like the holiday season or industry-specific peak periods — offers flexibility for many workers and much-needed additional staff for employers. However, the nature of seasonal employment can raise some questions about eligibility for employee benefits, such as the company’s 401(k) plan.

The rules governing who can participate in a 401(k) can be complex, but understanding how to navigate eligibility requirements can help retirement plan sponsors manage their plans effectively and ensure that the plan is competitive, cost-effective and compliant with IRS regulations.

Eligibility rules, which determine who can participate in a retirement plan, are ultimately determined by each individual employer. Some may allow seasonal workers to contribute to the plan as soon as they begin employment while other plans may be more restrictive to groups like seasonal, temporary and part-time employees. For example, many retirement plans require that an employee work a minimum number of hours or duration of time to participate in the plan, which may present challenges for seasonal employees who work intermittently on a short-term basis.

Retirement plan eligibility rules must comply with the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC). Further, eligibility rules should not be chosen arbitrarily; it’s important to find a balance when determining eligibility requirements, as overly strict or liberal rules can have a material effect on plan costs, ease of administration, and employee recruiting and retention.

In recent years, Congress has passed sweeping legislation designed to support both retirement plan sponsors and participants. Working with a retirement plan advisor can help you ensure that your plan stays up to date with these changes, such as those brought about by the Setting Every Community Up for Retirement (SECURE) Act of 2019 and the SECURE 2.0 Act of 2022.

For example, according to the SECURE Act (2019), employees must generally be allowed to participate in the company’s retirement plan beginning the first day of the 2024 plan year if they worked at least 500 hours per year for three consecutive years beginning in 2021. SECURE 2.0 reduced this time frame to two consecutive years beginning with the 2025 plan year.

Employers should review their specific 401(k) plan documents, which detail the plan’s eligibility criteria, with a trusted retirement plan advisor to ensure a thorough understanding of how seasonal employees are classified and whether they are permitted to participate in the plan. Advisors can also help plan sponsors weigh their options for seasonal employees moving forward.

While employers certainly have a legal responsibility to provide inclusive retirement benefits, it’s also in their best interest to provide benefits that foster employee loyalty and financial wellbeing. When employers understand the nuances of seasonal employment and 401(k) eligibility requirements, they can optimize their plan to support the needs of their diverse workforce.

Connect with a retirement plan specialist to learn more about 401(k) eligibility considerations for seasonal employees.

Navigating Seasonal Employee Eligibility for 401(k) Plan Sponsorshttps://www.cbiz.com/Portals/0/RPS/Images/Stock Images/401(k) form.jpg?ver=vJczvFE8rte_pBIy4G_Udg%3d%3dhttps://www.cbiz.com/Portals/0/RPS/Images/Stock Images/401(k) form.jpg?ver=vJczvFE8rte_pBIy4G_Udg%3d%3dThe nature of seasonal employment can raise some questions about eligibility for employee benefits, such as the company’s 401(k) plan.2023-11-08T17:00:00-05:00

The nature of seasonal employment can raise some questions about eligibility for employee benefits, such as the company’s 401(k) plan.

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