You can require that your employees meet certain requirements before they will be eligible to enroll in your standard 401(k) plan. Eligibility requirements can be set during the plan setup phase for new plans or throughout the plan year via an amendment for existing plans. However, when added to an existing plan at Guideline, the requirements will only apply to those who are not already eligible and have passed an entry date.

When amendments are made, participants will receive an email notification regarding the changes, which can also be viewed in an updated Summary Plan Description within their participant dashboards.

Note, eligibility requirements cannot be changed for Starter 401(k) plans. All employees over 18 years of age must be eligible for these plans.

Guideline allows plan sponsors to choose the following eligibility requirement options, if desired:

In addition to the eligibility requirements for age and service, you may choose to exclude employees in a certain class. At Guideline, non-resident aliens with no US-sourced income and residents of Puerto Rico are always excluded.

Non-resident aliens are employees who are not permanent residents of the United States and any income they receive is not taxed by the US. Residents of Puerto Rico typically also do not have US-sourced income. Because it may not always be clear to you how a Puerto Rican resident is claiming their income, plans at Guideline exclude them as a separate class.

Union and leased employees are also excluded from Guideline plans, unless you indicate otherwise. Plans can generally choose to allow union and leased employees to be eligible if they are paid in the same manner as your other employees.

Union employees have a specific definition for eligibility purposes. In order to be excluded, their bargained for agreement must state that retirement benefits were considered in the negotiations. This does not mean that they have to get retirement benefits under the contract, just that they are mentioned. While it is almost always included, you must check your collectively bargained agreement to ensure you are allowed to exclude union employees.

If you have employees that are union, leased, non-resident aliens, or residents of Puerto Rico and you are unsure if they are eligible to participate, feel free to contact administrator support. Guideline can help explain these definitions but cannot determine if a particular employee should be excluded.

Guideline plans require all other W-2 employees to be treated equally when it comes to plan eligibility. This means Guideline plans do not exclude part-time, seasonal, temporary, or any other named class of employees (except those listed above) within your eligibility requirements.

In general, all service counts for purposes of 401(k) plans. To determine if a rehired employee has met the service requirements for a plan with elapsed time (all Guideline plans), there are generally three rules to apply:

The last rule may need some additional explanation: if an employee leaves and is hired back within 12 months, it’s as if the employee never left. For example, if an employee quits and is rehired 11 months later, the 11 months count towards the service requirement. Periods of severance of at least 12 months generally do not count towards the service requirement (e.g., if the employee works for 6 months, is gone for 18 months and then rehired - the employee has accumulated 6 months of service at rehire). There is also an exception for maternity/paternity leave where the first year of leave does not count as a period of severance.

Finally, there is an exception called the “rule of parity” that would disregard prior service. It has several requirements and is the only rule under which an employee will need to complete eligibility service again after rehire. The requirements are:

If both of these requirements are met, then any service prior to the 5+-year break is disregarded and the employee is required to restart service.

Note that if your plan does not have a service requirement, rehires will generally enter the plan immediately following their rehire date. Because eligibility for rehires can be complex in some cases, feel free to contact support to discuss an employee’s unique circumstance.

A change that makes eligibility less restrictive for employees can be put into effect immediately and will apply to all employees as of the date of the amendment.

For example, if a plan previously had a 6-month service requirement, but changes to immediate eligibility (employees are eligible on their first day of employment), then all previously ineligible employees due to the service requirement would become eligible on the date the amendment goes into effect (assuming those employees are not in an excluded class).

These employees would become participants generally as of the next payroll date following the effective date of the amendment. Because of the requirements surrounding elective deferrals, changes to eligibility requirements cannot be made retroactively.

A change that makes eligibility more restrictive can also be made at any time, but at Guideline, it will only apply to employees who were not already eligible and have not yet entered the plan before the date of the amendment. Employees who are already participants in the plan will remain eligible when the plan amendment goes into effect.

For example, if a plan is amended from 6 months of service to 12 months, an employee who was eligible and passed an entry date before the change will remain eligible. However, if an employee was not yet eligible or met eligibility requirements but did not pass an entry date before the plan amendment went into effect, they would become eligible after the 12 months of service requirement.