Eligibility – Know Your Retirement Plan’s Provisions and Apply Correctly

Oct 18, 2016 | Retirement Plans

It is important you understand the provisions of your retirement plan eligibility to make sure all eligible employees, and only those eligible, are included as participants. Mistakes can easily occur if eligibility is not tracked accurately.  During the Plan Year, you should continually update your list of employees to determine if anyone has met the requirements to become a Participant.

You must know the provisions of your plan since not all plans have the same rules.  Some provisions may be allowed, but they may not be in your plan.  Also, don’t assume you know what the current plan provisions are; if your plan document was recently restated or amended, changes may have been made.  Your primary reference source must be the plan document (or adoption agreement plus the basic plan document), not the Summary Plan Description (SPD) which may not have sufficient detail.

During an audit, the IRS will look for errors in eligibility calculations.  Examples include: (1) improperly excluding eligible employees, (2) failure to re-enroll rehired employees, (3) failure to automatically enroll employees (for an automatic enrollment plan) and (4) failure to provide complete enrollment materials.  Other common errors are misclassifying an independent contractor or improperly excluding part-time or temporary employees, controlled group employees and merged employees.

By applying plan rules correctly and maintaining good records, your plan will run smoothly and you can avoid costly corrections for operational failures. Please contact Watkins Ross if you have questions pertaining to your Plan’s eligibility provisions or how to apply them.

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