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Find out if you are within the group of employees covered by your employer's retirement plan. Federal
law allows employers to include certain groups of employees and exclude others from a retirement plan.
For example, your employer may sponsor one plan for salaried employees and another for union
employees. Part-time employees may be eligible if they work at least 1,000 hours per year, which is about
20 hours per week. So if you work part-time, find out if you are covered.
When can your participation begin?
Once you know you are covered, you need to find out when you can begin to participate in the plan. You
can find this information in your plan's Summary Plan Description. Federal law sets minimum
requirements, but a plan may be more generous. Generally, a plan may require an employee to be at least
21 years old and to have a year of service with the company before the employee can participate in a plan.
However, plans may allow employees to begin participation before reaching age 21 or completing one
year of service. For administrative reasons, your participation may be delayed up to 6 months after you
meet these age and service criteria, or until the start of the next plan year, whichever is sooner. The plan
year is the calendar year, or an alternative 12-month period, that a retirement plan uses for plan
administration. Because the rules can vary, it is important that you learn the rules for your plan.
Employers have some flexibility to require additional years of service in some circumstances. For
example, if your plan allows you to vest (discussed in detail later) immediately upon participating in the
plan, it may require that you work for the company for two years before you may participate in the plan.
Federal law also imposes other participation rules for certain circumstances. For example, if you were an
older worker when you were hired, you cannot be excluded from participating in the plan just because
you are close to retirement age.
Some 401(k) and SIMPLE IRA plans enroll employees automatically. This means that you will
automatically become a participant in the plan unless you choose to opt out. The plan will deduct a set
contribution level from your paycheck and put it into a predetermined investment. If your employer has
an automatic enrollment plan, you should receive a notice describing the automatic contribution process,
when your participation begins, your opportunity to opt out of the plan or change your contribution
level, and where your automatic contributions are invested. If you are in a 401(k), the notice will also
describe your right to change investments, or if you are in a SIMPLE IRA plan, your right to change the
financial institution where your contributions are invested.
When do you begin to accumulate benefits?
Once you begin to participate in a retirement plan, you need to understand how you accrue or earn
benefits. Your accrued benefit is the amount of retirement benefits that you have accumulated or that
have been allocated to you under the plan at any particular point in time.
Defined benefit plans often count your years of service in order to determine whether you have earned a
benefit and also to calculate how much you will receive in benefits at retirement. Employees in the plan
who work part-time, but who work 1,000 hours or more each year, must be credited with a portion of the
benefit in proportion to what they would have earned if they were employed full time. In a defined
contribution plan, your benefit accrual is the amount of contributions and earnings that have
accumulated in your 401(k) or other retirement plan account, minus any fees charged to your account by
your plan.
Special rules for when you begin to accumulate benefits may apply to certain types of retirement plans.
For example, in a Simplified Employee Pension Plan (SEP), all participants who earn at least $600 a year
from their employers are entitled to receive a contribution.