You can require an employee to complete either one or two years of service before becoming a participant. A Year of Service is a year in which an employee completes at least 1000 hours of service. The year is measured from an employee's date of hire to the anniversary of that date.
If the requirement is one year, you may use a vesting schedule (see vesting on the Main Page). If two years, the employee must be 100% vested upon becoming a participant.
You may also require that an employee be at least age 21 before becoming a Participant.
Union members and non-resident aliens may also be excluded.
Participation begins on an Entry Date. The Entry Date is usually the first day of the Plan Year, or the first day and the first day of the seventh month following completion of the requirements. With one Entry Date, an employee should become a Participant on the Entry Date nearest completion of the eligibility requirements. With two, on the Entry Date following their completion.
A Participant is someone who benefits (receives an allocation of contributions or forfeitures, or accrues a benefit) during a Plan Year.
The general rule is that at least 70% of lower paid employees must benefit during the plan year, if all highly compensated employees benefit. If, say, half the highly compensated benefit, 70% of that 50%, or 35% of lower paid employees, must benefit.
These rules usually come into play as a result of a design feature of the plan that states that an employee must complete a certain number of hours (1000) and/or be employed at the end of the Plan Year to receive an accrual or contribution. In performing the above percentage test, all employees who either:
must be counted.
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