Seasonal Workers May Be Eligible for your 401(k) Plan - Are you Prepared?

As employers begin hiring their seasonal summer workforce, they should review their 401(k) plan documents to determine whether these employees are eligible to participate in the plan.

Excluding part-time, temporary and seasonal employees from a 401(k) plan may seem straightforward. These employees generally work fewer hours, typically do not qualify for health benefits and often are not considered part of the company’s core workforce. At first glance, it may appear that they would not be eligible for retirement benefits either. However, employers too often assume these workers are automatically excluded, which can lead to costly plan corrections and compliance issues.

Long-standing retirement plan rules, combined with the passage of the SECURE Act and SECURE 2.0 Act, have made the exclusion of part-time employees more complex than simply adding language to a plan document.

The law does allow certain classes of employees to be excluded from a 401(k) plan. These classes must be clearly defined in the plan document and considered reasonable. Common examples include union employees, leased employees and nonresident aliens.

If a plan seeks to exclude employees based on service-related classifications such as seasonal workers, temporary employees, or summer interns, the exclusion generally is not permissible without “fail-safe” language. This language typically provides that employees excluded under these classifications who either complete a year of service (1,000 hours of service during a 12-month period) or qualify as long-term part-time employees (age 21 or older and completing at least 500 hours of service during two consecutive 12-month periods) must become eligible to participate in the plan. In the case of long-term part-time employees, eligibility may be limited to making elective deferrals.

In other words, employees can no longer be excluded from the plan once they satisfy either of these requirements.

This required fail-safe language helps ensure that plans do not impermissibly exclude employees who have earned eligibility through their service. It also creates an important administrative responsibility: employers must track hours of service for seasonal, temporary and intern employees. As a best practice, employers should carefully monitor hours worked for all employees, regardless of classification or title.

Excluding summer interns, seasonal workers, or temporary employees is not simply a plan design decision. It is a compliance matter that requires careful consideration of both plan provisions and federal law. Employers should review their plan documents and administrative procedures to ensure they are operating their plans correctly and avoiding costly correction programs.

If you have questions about employee eligibility or your plan’s exclusion provisions, contact our Retirement Plan Division for assistance.