The Issue: May employers exclude certain classes of employees (e.g., interns, part-time employees, temporary employees) from participation in a qualified retirement plan?

The Solution: Yes, subject to certain caveats.  Employers should consider how they define excluded employees, as well as coverage and nondiscrimination requirements.

Analysis: While employers may generally exclude a specified class of employee from participation, it is important to clearly understand how the class is defined and beware of nondiscrimination rules.  For example, “interns” and “independent contractors” may actually be employees, but it may still be possible to exclude them.  In the latter category, plans often exclude temporary employees.  If the definition of temporary employee is hours-based (e.g., a person hired for a short period of time) then the employee must be allowed to participate if the employee satisfies a year of service (i.e.,1,000 hours).  Similarly, while interns may be excluded, it is important to define who constitutes an intern.  Additionally, there are special rules for “leased employees.”  Finally, even if the exclusion is permissible, the employer will need to make sure coverage and nondiscrimination tests are passed despite the exclusion.

This article first appeared in the latest issue of the California HR Newsletter.  To view the entire newsletter click here.