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February 20, 2009

Eligible employees

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Definition

Employees who have met the plan’s eligibility requirements for participating in the plan.

The eligibility requirements vary among plan types. The following chart provides some examples.

Feature/
Benefit

SEP IRA

SIMPLE IRA

SIMPLE 401(k)

Solo-k/
Individual-k

Traditional 401(k)

Money Purchase

Profit Sharing

Defined Benefit Plan

Age Requirement

Can exclude employees under age 21

N/A

Can exclude employees under age 21

Can exclude employees under age 21

Can exclude employees under age 21

Can exclude employees under age 21

Can exclude employees under age 21

Can exclude employees under age 21

Service  & compensation requirement

Must include employees who work 3 of the 5 preceding years. A year of service is any period during the year, however short. Can exclude employees who earn less than $500

Must include employees who received at least $5,000 in compensation from the employer during any two preceding years and who are reasonably expected to receive at least $5,000 in compensation in the calendar year

Must include employees who have performed at least one year of service. A  year of service can be up to 1,000 hours during the plan-year

Must include employees who have performed at least one year of service. A  year of service can be up to 1,000 hours during the plan-year

Must include employees who have performed at least one year of service. A  year of service can be up to 1,000 hours during the plan-year

Must include employees who have performed at least two years of service. A  year of service can be up to 1,000 hours during the plan-year

Must include employees who have performed at least two years of service. A  year of service can be up to 1,000 hours during the plan-year

Must include employees who have performed at least two years of service. A  year of service can be up to 1,000 hours during the plan-year

Referring Cite

Governing plan document or agreement

Additional Helpful Information

The statutory eligibility requirements for employer sponsored plans vary among plan types. For instance:

  • A 401(k) plan cannot require more than one year of service for eligibility purposes
  • A SEP cannot require more than 3-years of service for eligibility purposes.
  • For qualified plans, an employer can require no more than 1,000 hours of service during a 12-month period for purposes of determining 1-year of service .
  • For SEP IRAs, a year-of-service is any period, however short.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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