It’s important to understand when your employees can join your new 401(k) plan. Here’s a simple guide on how eligibility works.
Key Points About 401(k) Eligibility
Fairness: The plan must meet certain requirements to be considered fair to employees.
Ease of administration: Companies can choose enrollment times that make it easier to manage their plans.
Eligibility Basics
Age requirement
Companies can set a minimum age for plan participation.
The maximum allowable age requirement is 21 years old.
Service requirement
Companies may require employees to work for a specific period before becoming eligible.
This period may be the passage of time (elapsed time) from an employee's hire date; or
This period may be a number of months plus a minimum number of hours in that defined period (hours-based)
The maximum service requirement is one year (and 1,000 hours when hours-based).
Entry dates
Entry dates define when eligible employees can officially join the plan (on/after they meet both age and service requirements).
Common entry dates include semi-annually, quarterly, monthly, or immediately upon meeting age and service requirements.
Things to Consider When Setting Eligibility
Company goals
If your goal is to minimize costs while providing retirement benefits, consider a longer eligibility period.
If your goal is to attract top talent, consider a shorter eligibility period.
Industry standards
Research what your competitors are offering.
Shorter eligibility periods are common in industries with a competitive labor market.
Alignment with other benefits
It's common to align 401(k) eligibility with health care eligibility, typically after 1 or 3 months of employment.
Keep in mind that service counting rules are different between health care and retirement benefits (see part-time notes below)..
Part-time employees
401(k) plans cannot exclude employees just because they work part time.
The maximum age and service requirements you may select are age 21 and one year of service (12 months) with 1,000 hours worked.
Long-term part-time employees who work 500 to 999 hours for two consecutive years must be allowed to contribute to the plan, though they aren’t required to receive employer contributions.
Typical 401(k) plan eligibility examples
Example 1 - elapsed time aligned to health benefits
Age: 21
Service requirement: 3 months
Entry dates: First day of the month on/after meeting the age and service conditions
Example 2 - hours-based delaying entry (must track consecutive years)
Age: 18
Service requirement:
Baseline: first 12 months with 1,000 hours (checking each plan year if Year 1 not met)
Long-term part-time: two consecutive years with 500-999 hours since 2021
Entry dates: Every January 1 and July 1 on/after meeting the age and service conditions
Once you’ve set your plan’s eligibility rules, those details will be incorporated into the plan documents and shared with your employees via enrollment materials. By keeping the eligibility criteria clear and straightforward, you can ensure that everyone knows when they can start planning for their future.