Excluding interns from your 401(k) plan

As the summer intern season begins, many employers are wondering: Do I have to offer our 401(k) plan to these temporary employees?

Generally, the answer is no — as long as you set your policy up appropriately.

An employee must be allowed to participate in the employer’s 401(k) plan if they’re over 21 and have completed one year of service. However, you can exclude certain job titles or roles from participating in the plan. For example, you could exclude all “line cooks” or “rig welders” if you so choose.

Such exclusions must be linked to the job function and not the term of service. In other words, it is generally not permissible to exclude all seasonal or temporary employees — or interns — unless you qualify that exclusion with failsafe language clarifying eligibility.

Minimum eligibility rules for 401(k) plans

Under the Employee Retirement Income Security Act (ERISA), one year of service is considered 1,000 hours of work performed during the plan year. More recently, the SECURE Act expanded 401(k) eligibility to include an employee who works 500 hours in each of three consecutive 12-month periods.

That means that employers who wish to exclude all interns from the 401(k) plan should include language specifying that any employees in the excluded class who meet the above service requirements would be eligible to make deferral contributions.

The IRS has specific rules about how you can exclude employees from your 401(k) plan. If you do not follow these rules, you could be subject to penalties. If you are considering excluding interns from your 401(k) plan, make sure that you are doing so in a way that complies with the law.