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  1. #1

    Default Can an Employer Remove an Employee from a 401K Plan

    My question involves labor and employment law for the state of: California

    Many employers offer 401k plans to their employees. Some employers require that employees meet specific requirements before being allowed to participate in the 401k.

    The IRS limits the requirements that employers can impose on employees with respect to 401k access. Specifically, the most stringent requirement allowed is one year of service + 1000 hours of work.
    Imagine the following situation:

    Year 1: Employee works for 1000 hours
    Year 2: Employee joins 401k. Employee works for 500 hours.
    Year 3: Employee is removed from 401k because he did not work for 1000 hours in year 2.

    Is this legal? Can the 1000 hour requirement be imposed for each preceeding year of employment or is an employee who is given access to the 401k entitled to retain the ability to contribute as long as they remain employed?

    If the answer is the latter (employee keeps access to 401k), are there any links or documents that address this? any specific terminology that can be searched for?

  2. #2
    Join Date
    Oct 2006
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    16,474

    Default Re: Can an Employee Lose Access to a 401k

    I have never worked for any company that limited any employee's access to a 401k

    There are HR pros who post here who should be able to answer that question. I would be interested in knowing how it helps any employer to limit access.

  3. #3
    Join Date
    Mar 2013
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    18,340

    Default Re: Can an Employee Lose Access to a 401k

    Quote Quoting laborquestion
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    Is this legal? Can the 1000 hour requirement be imposed for each preceeding year of employment or is an employee who is given access to the 401k entitled to retain the ability to contribute as long as they remain employed?
    You need to avoid using buzzwords that imply that the employer is doing something evil.

    "Lose access."

    "Removed from the 401k."

    When the worst that can happen is that the employee cannot contribute for the period for which he doesn't qualify.

    Any money he puts into the 401(k) is still his money as is any earnings on that amount. Nobody's taking that away from him.

    Why are you asking about this? Is something happening to you?

  4. #4
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    Default Re: Can an Employee Lose Access to a 401k

    Why do you believe that an employee should be allowed to participate in a plan when they do not meet the eligibility requirements?

  5. #5
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    Default Re: Can an Employee Lose Access to a 401k

    It only refers to the employer matching. Any money the employee contributes is still going into the 401 and remains their money.

  6. #6
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    Default Re: Can an Employee Lose Access to a 401k

    NO money is going to be lost as long as the employee is still employed, even if they are no longer eligible. No more money will go in until they become eligible again, but even non-vested employer contributions will remain in the plan until such time as the employee leaves that employer. THEN any non-vested employer contributions will be deducted. Vested employer contributions and all employee contributions will remain even after the employee is no longer employed, but as long as the employee IS still employed by that employer, even if they are no longer eligible, EVERYTHING that is in their account will remain there.

  7. #7
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    Default Re: Can an Employer Remove an Employee from a 401K Plan

    And by the way, the rules for these plans are set by Internal Revenue Code (IRC) section 401(k) and the related Treasury regulations. They are thus § 401(k) plans, not 401K plans, 401k plans, or any of the other ways I've seen them referred to on various sites. Even a lot of employers get this wrong when describing these plans.

  8. #8
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    Default Re: Can an Employer Remove an Employee from a 401K Plan

    Quote Quoting Taxing Matters
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    And by the way, the rules for these plans are set by Internal Revenue Code (IRC) section 401(k) and the related Treasury regulations. They are thus § 401(k) plans, not 401K plans, 401k plans, or any of the other ways I've seen them referred to on various sites. Even a lot of employers get this wrong when describing these plans.
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