Poll: Workers Get Into K Plans Before Profit Sharing

January 8, 2004 (PLANSPONSOR.com) - It generally takes longer for workers to become eligible for a profit-sharing program than a 401(k) plan, according to new industry research.

According to a poll by the Profit Sharing/401(k) Council of America (PSCA), 51% of companies surveyed opened the 401(k) door to employees during their first 90 days with the company, while only 22% permitted workers into a profit-sharing plan in the same time frame.

A PSCA official praised the early admitting firms. “Workers benefit from having early eligibility,” said President David Wray, in a statement. “Not only do they have a greater opportunity to save for retirement with fewer gaps in coverage, they are able to begin contributing without feeling the pinch that sometimes affects workers who enroll later on.”

Of the 200 firms polled offering both plans, the PSCA found that:

  • 16% have immediate eligibility for both plans
  • 10% have immediate 401(k) eligibility and a one-year profit sharing eligibility
  • 12% make workers wait six months in both cases
  • 29% have a yearlong eligibility period in both instances

In any event, more than six in 10 (65%) use the same rules for either program, the poll found.

Eligibility is also getting shorter, according to the PSCA – but for a good reason. Between 1998 and 2003, 401(k) eligibility periods of three months or less increased to 51% from 32%. Much of this increase is likely due to new employer incentives that took effect in 1999 allowing employers to exclude employees who were in their first year from the ADP tests.

Before that, granting early eligibility could easily result in difficulty passing the ADP tests, since new hires traditionally participate at lower rates than other workers, the PSCA said.

The PSCA poll covered 271 companies.The survey is available online at http://www.psca.org/PDFS/elig2003.pdf . A free registration is required.