The majority of 401(k) and profit-sharing plan sponsors require one year of service before an employee is eligible to participate, according to the results of a new study on eligibility practices conducted by the Profit Sharing/ 401(k) Council of America, Chicago.
Nearly 44% of 401(k) plans and about 61% of profit-sharing plans have a requisite of one year of service, the poll of nearly 400 PSCA member companies revealed.
The survey is the first for PSCA and will be used as its benchmark, said Patty Alman, technical writer and Web site developer who helped conduct the study.
The timing of the poll was the result of changes to the Small Business Job Protection Act that became effective Jan. 1. The new law permits separate discrimination testing for highly paid and lower paid employees, and is expected to increase the number of plan sponsors that allow immediate eligibility for their 401(k) plans, Ms. Alman said.
According to the survey, 24% of 401(k) plan sponsors and 9.4% of profit-sharing plans permit immediate participation.
The study also revealed about 68% of companies that sponsor both kinds of plans use the same eligibility practice for both plans. The majority of companies that employ both plans, or 41%, have a one-year waiting period, while only 7.9% of companies have immediate eligibility for both plans.