Companies Move toward Faster Eligibility for Retirement Plans

Profit Sharing/401k Council of America (PSCA) research shows a dramatic change over time to employee eligibility requirements for company-sponsored retirement plans.

PSCA noted that in 1998, when it first began collecting defined contribution plan eligibility data, only 24% of employers allowed employees to begin contributing to their 401(k) plans immediately upon employment. This percentage has more than doubled to 55.1% of all employers in the fall of 2008.

The percentage is even greater among employers with 1,000 or more employees (70.5%).

Employees are eligible to participate within the first three months of employment at 72.7% of companies and at 87.2% of large companies (1,000 or more employees), PSCA said. Only 14.7% of all plans have a one-year or longer service requirement prior to eligibility.

For matching company contributions, 38% of all employers allow immediate eligibility for employees, while 8.7% have a three-month service requirement, and 9.9% have a six-month service requirement for eligibility. A little more than 29% of employers have a one-year service requirement for employees to be eligible for company matching contributions.

As for age requirements, 42.8% of companies have no minimum age mandate for eligibility for participant deferrals. Just over 40% have no minimum age requirement for employees to be eligible for matching contributions.

Stricter Eligibility for Non-Matching Company Contributions

PSCA’s research also indicated a trend away from longer service requirements for employees to be eligible for non-matching company contributions to retirement plans; however, in 2008, 49.3% of companies still required one year or more of service.

Nearly 22% of all companies allowed for employees to be immediately eligible for company match upon employment, but among the largest employers (1,000 or more employees) almost 65% provide for immediate eligibility.

As for age requirements, 42.7% of companies had no minimum age requirement for eligibility for non-matching employer contributions, while 21.9% had a minimum age requirement of 18, and 34.7% required employees to be 21 to be eligible.

PSCA collected defined contribution plan eligibility data from 531 companies, 97.7% of which permit employee contributions to an employer-sponsored defined contribution plan, 78.5% offer employer matches, and 54.9% make non-matching company contributions.

The PSCA report is here.