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Can a construction company exclude field employees as a class in a 401(k) plan?

We are a construction company with a 401(k) plan. We have two sets of employees: office and field workers. They are on separate payroll accounts.

Our field employees include: union, non-union prevailing wage and non-prevailing wage work or employees who earn an hourly wage. In a given year, field employees may work union, non-union prevailing wage and non-prevailing wage hours.

We understand that there are built-in provisions for excluding union employees (collective bargaining); however, we would like to also exclude prevailing/non-prevailing hourly wage employees who work under 1000 hours.

Is there a simple way to do this? Field workers are defined in our employment manual. We also use separate payroll accounts.

Mar 28, 2017 by Administrator in  |  Flag
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It gets extremely difficult to discriminate in 401k plans, because the purpose of them is to make sure everyone gets an equal share of retirement. from the IRS "Contributions or benefits must not discriminate. Under the plan, contributions or benefits must not discriminate in favor of highly compensated employees. Generally, employees with compensation of $120,000 or more from the employer in the prior year are considered highly compensated for 2015, 2016 and 2017 (subject to cost-of-living adjustments). In order to satisfy this requirement with regard to elective deferrals and employer matching contributions, 401(k) plans may provide (safe harbor) minimum employer contributions or meet the Actual Deferral Percentage and Actual Contribution Percentage tests." https://www.irs.gov/retirement-plans/plan-sponsor/401k-plan-qualification-requirements

What you can do is max out your eligibility requirements to the 1 year of service and at least age 21 in order to participate. This might get rid of some of your contract workers and new hires. If you are trying to do a profit share you might want to discuss it with your advisor/third party administrator on how to properly distribute the funds because there can be some level of discrimination based on wage and tenure. You can also set up some possible vesting schedules on funds you put in certain key employees accounts, but again you would want to discuss with advisor and TPA. You mentioned the 2 groups of employees have different payroll, but are they working for different companies? if so there might be an ability to set up the plan for only one of the companies.

I have worked with a few construction firms and found when they look at this same scenario they don't end up paying as much as they anticipated for those other employees they weren't sure about matching. They also typically get great outcomes when they open themselves up to everyone. There might be another outlying fear that you might want to address and see if it really will affect you.

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