Eligibility Wait Shrinks, According to PSCA

December 6, 2000 (PLANSPONSOR.com) - The wait for new employees to join a 401(k) plan is shrinking, with over half (52%) of surveyed plans offering eligibility in 3 months - or less - of hire date. Two-thirds of employers with more than 1,000 employees did so.

Thirty-seven percent of 401(k) plans surveyed allow contributions to begin within the first month of hire, up from 24% in 1998.

No Waiting

“Immediate” eligibility, defined as eligibility occurring during the first month of employment, in 401(k) plans rose from 24% of plans in 1998 to 37% this year, according to the 401(k) and Profit Sharing Plan Eligibility Survey 2000. 

The Profit Sharing/401(k) Council also notes that recent legislative changes in the nondiscrimination testing (ADP/ACP) requirements have also made it easier for companies to speed up their eligibility requirements.

“Before 1999, having immediate 401(k) eligibility could actually penalize highly compensated employees by reducing the amount they could contribute to their own plan,” according to PSCA President David Wray.  “Beginning in 1999, companies were permitted to exclude employees in their first year of service from the ADP/ACP tests. This change effectively eliminated all legislative barriers to immediate 401(k) eligibility, and companies have now caught on to this fact.”

Equal Opportunity?

Of the 348 plan sponsor respondents:

  • 62% offer both a profit sharing and a 401(k) plan and use the same eligibility rules for both plans
  • 28% of those that offer both a profit sharing and a 401(k) plan have a one year eligibility period for both plans
  • 15% that sponsor both a profit sharing and a 401(k) plan have immediate eligibility for both plans
  • 13% that have both plan types offer immediate eligibility for their 401(k) plan and a one year eligibility period for their profit sharing plan.

The survey is online at http://www.psca.org/pr40.html .