401K plan for some, not others

[DRN]

New York State

If an employer offers employees a 401K plan upon 1 year of employment, and said employer does not give some employees the option of joining the plan upon their anniversary date (or after said date), but does allow other employees to join, what are the shunned employee's options?

I was told by an accountant friend that the employer must offer the plan to all eligible employees and if any employee turns down the plan, said refusal must be in writing. Accountant also said that the employer would have to pay the shunned employees the maximum amount they could have earned from the 401K plan had they been allowed to join it when first eligible.

Can the shunned employees be compensated for the time they were elgible for the plan but not offered the plan?

Who should this be reported to - the state labor board or the IRS?

Thanks.

 

[Beth3]

Your accountant friend is correct that all eligible employees must be offered participation in the 401(k) Plan. If, for example, the 401(k) Plan Document states that all full-time employees working 40 hours per week are eligible after 12 months of employment, then ALL employees meeting that criteria MUST be offered participation in the Plan. No exceptions. The employer cannot pick and choose which eligible employees to offer participation to.

My suggestion would be for you to get hold of a copy of the 401(k) Plan Document and take a look at the section that defines who is eligible. If the employer is violating the terms, then the government agency to file a complaint with is the federal Department of Labor.

 

[cbg]

Keep in mind that all eligible employees does not necessarily mean all employees. If there is a qualifier that only full time employees are eligible or something of that kind, it does not invalidate the plan. Some plans also require that an employee be 18 or 21 years old - that is legal too.

However, any employee who does meet the eligibility requirements must be offered the plan, without exception.

 

[DRN]

Thank you for your responses.

The situation in question is a firm, 12 person staff, 10 of whom are full time employees.

For unknown reasons, 3 of the full time employees were never given the opportunity to enroll. All were told upon being hired that the only requirements were full-time status and 1 year employment. All three meet those requirements. Two have over 2 years with the firm. All are over age 21.

Thanks again for your help. I will pass on the information.

 

[DRN]

I passed on the information and one of the shunned employees called the federal Dept. of Labor.

She was told:

1) in order to prove she is eligible, she needs a copy of the actual plan; and

2) since she isn't in the plan, the employer is not obligated to give her a copy of the plan (only have to give it to participants).

The employer refused to give the plan to her and ordered the other employees to do the same.

 

[StacyLB]

Has she asked her employer why she isn't in the plan? That would be my first suggestion.

 

[DRN]

The employer has told them that they are not eligible but that is all he has said. No further explanation, such as why they are not eligible.

At hiring, they were told one year employment and full-time status were the requirments to participate. All three meet those requirements.

Of the ten full-time people, seven participate. They are:

1 receptionist, hourly pay;
2 secretaries, both hourly pay;
1 marketing director, salaried
2 computer specialists, salaried
1 office manager, salaried

The shunned people are:

1 secretary, hourly pay;
1 workshop/education director, salaried;
1 computer specialist, salaried

The only apparent difference is the shunned employees are shunned in other ways. They aren't in the "clique."

No outright hostile acts, such as sabotage, but things like snide remarks, not invited for after-work drinks, conversations stopped upon their arrival, etc.

All are female, except for the three computer specialists.

 

[Beth3]

I suggest the employee call the DOL back and speak to someone else. Being told you have to have a copy of the Plan to prove a violation occurred and then that the employer doesn't have to give you a copy because you're not in the Plan is absurd. If she gets the same story, then she should ask to speak to a supervisor.

 

[DRN]

I thought it was a little absurd also, but hey, sometimes absurdity seems to be a requirement for federal rules.